The Australian Taxation Office (ATO) has announced a widespread crackdown on businesses engaging in tax underpayment this year, primarily focused on unpaid superannuation payments, and the black economy. Now, the ATO is also taking aim at payroll taxes.
A relatively large number of small businesses don’t pay, or underpay, their payroll taxes. By matching data from multiple other sources the ATO is now better able to test for compliance, and has launched a range of payroll tax investigations to recover its lost funds. Unfortunately, these investigations are often both incredibly expensive, and time consuming for the targeted businesses.
Startups often simply forget to pay
Entrepreneurs who are just launching their businesses often don’t need to concern themselves with payroll taxes. The tax only comes into effect once annual wage payments exceed a certain amount dictated by the state the business is located in, ranging between $600,000 to $2 million. Because of this, small businesses often operate for years before it ever becomes an issue. Once wages do rise beyond their state’s threshold, they simply fail to notice, and don’t pay. Worse, businesses that operate in multiple states will begin paying payroll taxes at different thresholds for those locations, leading to even more confusion.
Once the ATO catches up to them, the costs can become a serious issue, potentially costing tens of thousands of dollars in taxes and penalties. For small businesses, who typically operate on very tight budgets, this can cause very serious problems, potentially even destabilising the business as a whole, and interfering with the business’ regular operation.
SMEs need alternative financing resources
If you’re a business owner that’s under audit, or who has just belatedly realised that you owe payroll taxes, the prospect of paying a potentially massive surprise tax bill can be daunting. Applying for a traditional loan to cover the cost can often simply take too long, and, for a small business, there’s no real assurance that you’ll be approved.
Fortunately, there are a wide range of alternative financing options available to you to help your business absorb the cost without impairing its day-to-day functions. Most importantly, all of these options are accessible almost instantly, with application processing times measured in hours instead of weeks or months.
For many businesses, cash flow issues like this are more a burden of timing than one of simple cost. Invoice financing allows businesses to resolve this, by making it possible to give your business an advance on future income. Unlike a loan, invoice financing doesn’t obligate a business to pay any interest payments, and doesn’t include any surprise fees or complicated financial hoops to jump through. Instead, your business simply trades an outstanding invoice to the financial institution for most of its value. The financial institution then collects the payment from your client themselves, and issues the remaining funds, less a predetermined fee when the client pays.
Supply chain finance
While invoice financing works by giving yourself an advance on future funds, supply chain finance does the opposite by delaying outgoing payments. When needed, businesses can use supply chain finance to pay suppliers without dipping into their current working capital. This allows them to apply their current funds to other purposes, deferring those payments to a later, more manageable date.
Used in conjunction, invoice financing and supply chain finance can consolidate a large amount of working capital in a short time. This makes it possible to make relatively large investments, or cover what previously seemed like unmanageable costs, at a moment’s notice.
Unsecured business loans
Not all businesses issue invoices that they can finance, of course. Retailers, for example, generally make a large number of small and immediate transactions with customers. These businesses can turn to an unsecured business loan to come up with funds in the short term.
Unsecured business loans do work like traditional loans, meaning that repayments need to be managed carefully and that regular interest payments are involved. Unlike more traditional loans, however, they are almost instantly accessible, and often don’t require the same credit checks as loans with your primary banking institution. Instead, a representative of your financial institution will analyse your business as a whole, and determine what your best options are to meet your financing needs. These tools make it possible to face financial surprises like a payroll tax investigation without the fear that you won’t be able to keep the lights.