Five steps to reduce business tax debt

Rising costs and increased compliance demands can make it very difficult for small businesses to stay totally on top of tax obligations.

Even if you’re regularly putting money aside for tax, it can be tempting to dip into it. Problems can also arise if you haven’t calculated things correctly and you end up with a larger tax bill than you were expecting.

If business tax debt is causing a cash flow problem and you’re not quite sure what to do about it, here are five steps you can take.

1. Review your previous tax submissions

If you’re struggling to reduce business tax debt, it’s always worth getting a second opinion. Errors in tax submissions are common, and without a regular review, they can go unnoticed, potentially costing you thousands. Working with a tax accountant can help identify any bookkeeping errors, missed deductions or unclaimed expenses that may be eligible for a refund.

In some cases, a simple mistake such as an overlooked expense or misclassification could end up impacting your bottom line. An accountant from Mobbs & Co can conduct a detailed review of your tax history to ensure you’re compliant and not paying more than necessary.

2. Set up a payment plan

It won’t reduce your tax debt, but setting up a payment plan with the ATO can ease the financial burden. These plans allow you to pay off tax debts in manageable instalments, reducing strain on cash flow and helping you avoid penalties or interest for late payments.

The ATO offers flexibility in structuring these payment plans to fit your cash flow needs, but engaging a tax professional can help ensure your payment plan is effective and realistic.

When you negotiate the payment plan (your tax accountant can help), be realistic about what you can pay each month and don’t commit to a huge amount that will negatively impact your business operations.

3. Explore finance options

Sometimes, an unexpected tax bill may require external financing to keep operations running smoothly. Business loans, lines of credit or even short-term financing solutions can be explored if you face tax obligations that exceed your current resources. It’s worth consulting a financial advisor and loan broker who can help identify the most suitable option based on your cash flow and financial objectives. This approach can also free up cash for other essential expenses, putting you in a healthier financial position.

Note this isn’t personal advice: a specialist can help you work out a plan to manage your business tax debt.

4. Find ways to boost revenue or reduce expenses

When tax demands put pressure on your budget, exploring ways to increase revenue or cut unnecessary expenses can help create more financial breathing room. Focus on optimising sales, reducing operational inefficiencies and revisiting supplier contracts for better pricing.

Reviewing your budget can reveal areas where costs can be trimmed without compromising the quality of your products or services. Redirect this money to your tax debt and you’ll start to see the light at the end of the tunnel.

5. Seek legal counsel from an insolvency lawyer

In extreme cases where financial struggles persist and tax obligations seem insurmountable, seeking counsel from an insolvency lawyer may help. This specialist can help assess your situation, advise on potential insolvency solutions and offer legal guidance on protecting your business assets and managing debts.

While insolvency is generally a last-resort, having expert advice ensures you are aware of your options and rights if your financial situation doesn’t improve.

Get help if you’re struggling

If tax challenges are overwhelming, remember there are resources available to support you. The Small Business Debt Helpline provides free financial counselling to Australian business owners facing financial hardship. Contact the Small Business Debt Helpline for more information.

Need help to reduce business tax debt?

Following these steps can help you regain control over your business tax, improve cash flow and manage tax compliance with confidence. From there, it’s important to structure your finances so you always have tax money to hand when it is due. Reach out to Mobbs & Co for more personalised information.