Over recent years, bank scrutiny of the ATO position of clients has gradually increased.
This is was originally on the back of the substantial increase in ATO debts during the GFC in 2008. The ATO was very supportive of business through this period and significant debt accumulated as a result. From circa 2010, this position changed and the ATO became much firmer and has since been the cause of many businesses been wound up.
The banks have gradually increased their scrutiny of the ATO debt position of clients. Until recently, a debt under an arranged payment plan (with an explanation as to why this occurred) or a recently repaid debt, were things that would generally be accepted by the banks. However, we are now in an environment (again with a large reason being the Royal Commission) where any ATO debt, even under a payment plan, is an automatic 'no' to any finance request. Furthermore, even if there is a debt that has recently been repaid, this can similarly stop a transaction from proceeding with many banks now wanting a 6 – 12 months clean history with the ATO.
So, what is the reason behind this? From the bank's perspective, ATO debts are due to GST and PAYG Withholding payments plus PAYG Tax Instalments for the clients themselves. Particularly the first two of these relates to money which the business is effectively holding on behalf of the ATO – it is technically cash that is never owned by the business and is just been administered by the business on behalf of the ATO. If the client is unable to make these payments, then it means one of two things. Either the client has a cash flow issue or has poor management ability. Both of these items are major red flags for the banks. It is not unusual for a business to have periods of tight cash flow, but the banks do not see delaying BAS and Tax payments as a solution to this. The clients need to work through this and, if required, look to their main bank for additional assistance.
There is no doubt obtaining a payment plan from the ATO is quick and easy and they generally refund any interest and thus it is also economical. If cash flow is, or maybe a little tight, an ATO payment plan looks like a quick, simple and cost-effective option. We are now in an environment where this needs to be seriously weighed against any intended finance requirements, or annual reviews on existing finance, with a bank over the next 12 months (and not many businesses go 12 months without dealing with the bank).