BAS: The consequences of late lodgement
One of the biggest mistakes businesses make is putting off lodging their quarterly BAS returns. For those who do their own books, there are many reasons for this. They get caught up in the day-to-day running of their business or the person who has been doing their books for them is no longer available. While some business owners have a carefree attitude to lodging their BAS returns, the consequences for late lodgement can be severe.
ATO has an escalation process for late lodgement of BAS returns, with the first step being a notice to the business owner and the last step being a summons to court. SMEs should also be aware that as the process escalates, it can trigger an audit.
Ultimately, the ATO wants to avoid the situation reaching the last step and the subsequent effort and costs associated with liquidating a business, should this be their only option. Therefore, throughout the process, the ATO will give SMEs every opportunity to contact them to put in place a payment plan and they will be looking at what the business owner is doing to rectify the situation.
Looking closer at a couple of examples will give us an understanding of how business owners find themselves on notice from the ATO for late BAS lodgement.
In the first scenario, the business owner, who runs a commercial cleaning business had recently been through a divorce and his ex-partner had been doing his books. With his ex-partner no longer available, he let the bookkeeping slide and found himself on notice from the ATO for non-lodgement of three BAS returns. In the first instance, it was obviously important to complete and lodge the business owner’s BAS returns. Secondly, it was crucial to automate his bookkeeping practices by setting him up with accounting software that enabled him to generate invoices and quotes quickly and gave him a nightly automated bank feed that downloaded his bank transactions to the software. This meant his paperwork was kept up to date and ready for quarterly preparation of BAS returns.
Having streamlined bookkeeping practices in place will be especially important for the business owner in this scenario, as the government announced in the last Budget that it would extend the existing taxable payments reporting system (TPRS) to businesses in the cleaning and courier sectors. It is expected that in the next financial year, business owners in these sectors will need to report the payments they make to subcontractors, which can then be data matched by the ATO.
In the second scenario, the business owner found himself in the final stage of the escalation process, with a summons to attend court, after failing to lodge five BAS statements. With the day-to-day running of his business consuming his available time, he neglected his lodgement requirements and subsequent notices from the ATO. The consequences of being charged for failure to lodge can be serious and the penalties for these charges can be high. Preparation of multiple BAS returns takes many hours and can be costly, particularly in the case of this business owner, whose record keeping was limited to a bundle of paper in a box.
Furthermore, a director can also be held personally liable for company tax debts where those company liabilities are unreported after three months of becoming due. Before commencing proceedings against directors for unpaid company liabilities, the ATO must issue a Director Penalty Notice (“DPN”). If the DPN remains outstanding after its expiration (21 days from issue), the director is held personally liable and the ATO may commence proceedings to recover the outstanding tax debt or SGC from the directors of the company. In certain circumstances, directors and associates of directors will also be prevented from obtaining credits for withheld amounts in their individual tax returns where the company itself has failed to pay withheld amounts to the ATO.
The lesson for SMEs is to keep up to date with their paperwork and lodgement requirements and to engage the services of an accountant or bookkeeper early on to save them a lot of hassle and cost in the long run.