ATO ramps up business disclosure credit reporting agency strategy to get businesses to pay up

The ATO has embarked on a `name and shame’ strategy in a bid the claw back billions of dollars in tax owned by small businesses.

The Australian Taxation Office is ramping up its push to claw back billions owed by businesses, warning them to pay their tax and super obligations to avoid having their debts being disclosed to credit reporting agencies.

Since July 2023 the ATO has issued Notices of Intent to more than 22,000 business with a tax debt of at least $100,000 that is overdue by more than 90 days.

There is about $5bn owned by small businesses who meet the criteria to be named and shamed and more than 9000 businesses are expected to have their debts disclosed in October.

ATO assistant commissioner Jillian Kitto said paying or engaging with the ATO was the only way to stop a business’ tax debt becoming visible in credit rating checks.

“We give businesses ample opportunity to re-engage with us,” she said.

“However, those who show continued and ongoing disregard for their tax and super obligations will have their debts disclosed. While we do not take disclosures lightly, consequences will apply to businesses who refuse to pay or engage with us.”

The ATO expects more than 50,000 notices of intent will be issued 2023–24.

Ms Kitto said during the covid pandemic they shifted their focus from debt collection to stimulus payments and assistance with tax.

“However, it’s now time to re-establish the culture of paying tax on time,” she said.

“We must draw a line in the sand to protect the Australian community and other creditors, and to ensure a level playing field for businesses who do the right thing.”

The ATO says it’s time to re-establish the culture of paying tax on time.

Overall small business owes about $33bn to ATO.

The latest Credit Risk Insights report by Alares showed small business restructuring (SRB) appointments rose dramatically during August and September.

Alares director Patrick Schweizer said the spike might also explain the recent drop in ATO court activity “as more small business owners seek help via the SBR process.”

“There’s been a clear increase in the take up of the SBR process in the past two months, and there could be a few factors at play here.

“Firstly, many small businesses have now gone through the process in the past two years, so there’s generally a much better understanding of the process and the benefits among key stakeholders.

“Secondly, another recent wave of Directors Penalty Notices (DPNs) from the ATO may be encouraging more small business owners down the SBR path.”

As well as naming and shaming business through disclosure, if a company’s tax debt involves staff PAYG deductions, superannuation or GST, then the ATO can make those amounts the director’s personal debt and issue DPNs.

In the September quarter, SRB specialists Jirsch Sutherland said they had more than a 200 per cent increase in restructuring appointments compared to the same period in 2022, and the firm expects them to continue rising.

“We’ve handled a significant number of SBRs since the process was introduced in January 2021 but volume has really accelerated in the past few months,” said Andrew Spring, one of the firm’s 17 SRB practitioners.

“At first, SBRs were an unknown quantity but more and more directors of eligible small businesses, not to mention their advisers, are now inquiring about how the process works. And with the ATO getting more aggressive with their debt collection activities, that has prompted many into action.”

There is about $5bn owned by small businesses who meet the criteria to be named and shamed.

Revive Financial head of business restructuring and insolvency Jarvis Archer said DPNs were the ATO’s preferred debt recovery tool in the last 12 months.

He said the difficult issue for the ATO – which has limited resources – was working out which businesses to support and which to shut down.

“While the ATO can wind up companies, it’s an extreme measure. It’s not in anyone’s interest to shut down viable businesses. It also ties up the courts and is much more expensive to wind up companies than the other options available,” he said.

“The credit bureau reporting letters are relatively new, so we haven’t seen their broader impact but they’re certainly driving insolvency inquiries.”

Mr Archer said a common concern of business people contacting him regarding their financial difficulty was their credit file being tarnished.

“Business owners are very concerned about their ATO debt becoming visible. That could mean suppliers cease trade or put them on cash on delivery terms,” he said

“Additionally, it may cause issues with their bank and they may struggle to get finance or loans, both in their company and personally. Besides the financial consequences, it can also impact them more personally. Everyone talks and so as word gets out to employees, contractors and customers.

“Business owners risk have their personal reputation tarnished and other difficulties arising, such as disgruntled employees or customers pulling contracts.”