Retail business owners and directors are being urged to seek help immediately if they’re struggling to pay their tax because of pandemic-driven cash flow issues.

Speaking up now could ensure retail owners have more options to save their business or restructure, according to national business rescue and insolvency firm, Jirsch Sutherland.

“Inconsistent cash flow has a huge impact on when and how a business can meet its tax obligations,” Jirsch Sutherland partner, Andrew Spring said.

“The lockdowns and restrictions are causing many retail businesses across the country to struggle, and rising tax debts serve as a reminder to seek help. If you’re behind in your tax payments, it’s crucial to act quickly. While the ATO has been sympathetic about uncertain cash flows and made some changes to its normal practices. For example, it suspended its normal collection strategy around April 2020 – this generosity won’t last forever.”

Spring says if a retail business owner is in financial distress, it’s best to speak with a trusted adviser quickly, rather than wait another six to 12 months.

“With the ATO likely to ramp up its enforcement activity over the next six months, it’s crucial to have those conversations now. There may be fewer options available if you wait. A tax debt of $100,000 or more is a deep hole for most business owners to climb out of without assistance,” he said.

The ATO debt attributed to small to medium enterprises was $21.4 billion at FY20. “This reinforces that a significant number of SMEs have been majorly impacted by the COVID-19 disruptions and the trend of rising tax debt is expected to continue as the pandemic persists.”

Business rescue solutions

Australia has some of the most advantageous business rescue legislation in the world, being both quick and commercially focused. Options include:

  • Payment plans: “These can be a useful tool to manage short-term illiquidity, but more decisive options should also be considered for businesses that have been severely affected and are carrying significant debt (including ATO debt) on their balance sheets,” Spring says. “This is even more relevant today, due to the continuing uncertainty surrounding economic conditions and business forecasts.”
  • Voluntary Administration: “This regime is Australia’s business rescue program. It provides an opportunity to not only defer payment, but also compromise the amount of the payment to a level that the business can afford.” 
  • The new Small Business Restructuring Process (SBRP), “developed in response to the pandemic as another option to financially restructure and save a distressed business. Not only can you defer payment, but you can also negotiate the amount of the payment.”

“Both Voluntary Administration and the SBRP provide an opportunity for the total liability of a company to be reduced and deferred. Talking to a business recovery specialist doesn’t mean it’s the end of the line; it can be an effective way to solve your business’s financial problems,” Spring said.

Plan for the future

Jirsch Sutherland partner, Malcolm Howell, who is also a Bankruptcy Trustee believes it’s also crucial for business owners and directors to look to the future.

“It’s vital to look at your current cash-flow situation and up to 12 months down the track. It’s crucial to plan for now and for the immediate and longer-term future,” he said.

While corporate and personal insolvency numbers are currently low due to government support measures and the ATO, banks and state revenue offices not yet focusing on debt collection, debts are mounting, and pressure will continue to build.

“I expect to see a continual, steady increase in personal and corporate insolvencies over the next six months – but it’s difficult to predict the extent of it,” Howell said.