We all know that running a small business can have cash tight moments, and sometimes extra expenses that come along that were just unexpected.
The temptation to dip into a BAS savings account can be great, resulting in you robbing the tax man to pay one of your suppliers.
Unfortunately, some small business are in this vicious cycle every quarter – they just get ahead and then their savings are depleted the moment the BAS comes around.
The stress associated with it can be enormous when you realise you’re in this cycle.
The good news is that you’re not alone.
The better news, is that you can get out of this cycle with a two part strategy. Getting a payment plan, combined with a savings plan.
This week, we look at the first part of this strategy – getting a payment plan with the ATO.
What you need to understand about a Payment Plan
Getting a payment plan with the ATO should be your last resort when it comes to paying your BAS.
Because going forward you MUST pay all of your tax debt (both BAS and Income Tax) as and when it comes and fall due and it is imperative that you lodge and pay on time going forward.
You should also be aware that getting a payment plan will put a ‘red flag’ on your business with the ATO, which means as soon as you don’t comply on time with an obligation, the ATO will be tougher on you than they would be if you always complied with the rules before the payment plan.
However, these are things that shouldn’t stop you from getting the repayment plan if you genuinely cannot pay the debt on time.
We just want you to go in with all eyes open!
What’s involved with a payment plan?
1. General Interest Charge
The ATO will charge a general interest charge on your debt, which is tax deductible.
Provided you comply with all aspects of the repayment plan, and satisfy several criteria at the conclusion of the payment plan you may be entitled for a remission of these charges – but they are strict requirements to receive this.
2. You must pay your ongoing BAS and Tax Returns on time
This means putting money aside for your ongoing BAS on a weekly basis and never touching that money (see next week’s episode).
3. The ATO wants their debt within 12 months
Provided that you can pay your debt within 12 months and also comply going forward not for just the 12 months but for the rest of your business life, then you shouldn’t have too much trouble.
I have a BAS or Tax Agent
Now, if you’ve got a BAS agent of a Tax agent you can ask them to do it, especially if the debt is less than twenty-five thousand.
If the debt is over twenty-five thousand, then you might need to have a bigger conversation with your advisor just to make sure that the plan you have in place is put together in such a way that you know that you can pay all of your ongoing obligations on time.
They should also be able to help you put ongoing strategies in place to help you “save” for your BAS.
This also involves agreeing to call them whenever you need to ‘dip into’ the BAS savings account to check if you’ll be OK to do so – they’ll be able to check your ongoing obligation to make sure you aren’t short for the next BAS.
I don’t have a BAS or Tax Agent
This is OK, you can still apply for the repayment plan yourself. You need to call the ATO on 13 72 26 between 8am and 6pm Monday to Friday.
Before you call, will need to have access to:
a) your ABN,
b) the total debt with the ATO and
c) a document reference number (this is a unique reference number on one of your BAS’s called a “Document ID”).
The ATO will ask you how you got into your current situation, be honest and open with them. They’re people just like you, and they understand you can make a mistake. The important thing is that you’ve recognised the error and you are doing something about it.
In next weeks episode we investigate the second part of this overall strategy – how to ensure you can pay your BAS and Tax returns going forward with a savings plan.
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