Will the ATO look like a commercial credit controller in 2023?
In the commercial world, if you had a debtor book that was filled with well overdue debts and you were the credit controller, the owner would be less than pleased. This is the scenario that the ATO is currently looking at – they have over $66 billion in uncollected taxation revenue that has been accumulating over many years. This year we may see the ATO become more like a commercial credit controller who is looking to reign in its debtor book.
$66 billion is owed by taxpayers to the ATO as at 30 June 2022 – and they believe that $44.8 billion of it is collectable.
This collectable debt amount has grown by over $18 billion in the last three years, representing the highest level of growth in taxpayer debt in the past 10 years.
Of the $44.8 billion, 65% is owed by SME businesses.
In March 2022 the ATO restarted its debt recovery activity after two years of dormancy with a flurry by writing to approximately 30,000 businesses and 52,000 directors with a Director Penalty Notice warning, regarding their outstanding tax obligations. As of 30 June 2022 these warning notices achieved a recovery of $2.21 billion with a further 13,000 taxpayers entering into repayment programs. Further warning notices and DPN notices continued to be issued during the year, culminating in almost 18,500 Director Penalty Notices (DPNs) being issued during 2022 to individual directors due to more than 13,500 companies owing unpaid GST, income tax withholding, and superannuation guarantee charges.
This DPN activity was accompanied by the ATO disclosing nearly 500 businesses in 2022 to credit reporting agencies as part of its Disclosure of Business Tax Debt program.
We anticipate that during 2023 we will see much firmer action being taken by the ATO as it attempts to both recover the tax debts due and retard the consistent annual growth in unpaid taxes. This firmer action will potentially lead to an increase in both DPNs being issued and in the number of corporate Statutory Demands with subsequent winding up applications being filed with the courts.
Due to the reduction in staffing numbers in ATO collection teams throughout the pandemic, we anticipate that when combined with the number of taxpayers with debts outstanding that the ATO’s capacity to deal with matters may be impacted – resulting in it having less “patience” when looking at repayment offerings and/or requests for further forbearance.
When dealing with the ATO, proactivity has always been the mantra adopted by our office and this still holds true in the current climate. Those taxpayers who actively engage with the ATO are those which are more likely to be rewarded with additional time to resolve their tax debt issues than those businesses which adopted a “wait and see” approach or who choose to ignore the debt.
For those businesses that are unable to repay their debt in full (even with a repayment program), they will need to look at one of the many insolvency options available to them. These options can provide for the ongoing trade of the Company with a compromise put to creditors through either a Voluntary Administration or a Small Business Restructure program. Both processes are looked upon favourably by the ATO when dealing with business that has a viable operation.
Some factors to consider when assessing viability include:
* Does the business have sufficient cash resources to meet its December BAS due in March?
* Have anticipated debtor recoveries in January and February been delayed?
* Have the steps taken to revitalise the business post-COVID worked?
* How long will it take to recover and at what cost?
* Are all of its tax lodgements up to date so that financial information can be relied upon for forward planning and forecasting?
* Review of income streams
* Identify cost savings/spending requirements
* Identify & manage key creditors – both secured & unsecured
* Does the business require cash injections from external sources?
* Consider the mental health of the directors
Where the business is critically burdened by significant debt levels with poor future trading prospects, then owners may wish to consider voluntarily placing their company into liquidation – enabling a much needed mental break before considering their next steps.
At Brooke Bird we regularly meet with individuals and business owners dealing with a wide variety of financially stressful situations and each meeting has its own set of unique circumstances that requires time spent to map out the various possible options available. The solutions to resolving financial distress can be complex so we encourage individuals and business owners to make contact with us at the earliest opportunity so that their businesses have the best chance of survival.