One fact of business life is that you will at some point have to pay tax on your business profits. You will often have to pay tax in the form of insurance contributions for employees and, of course, sales taxes.
It is normal practice for a business to recoup its sales tax or Value added taxes from the tax authorities, meaning the end user or customer ultimately pays it. However problems can sometimes occur when a business has charged the taxes to the end customer but has not paid over the taxes to the authorities. Also the business may need to pay over taxes from employing people.
What if I can’t pay the tax?
So you get a call or a letter from the tax authorities and they demand full payment. If you cannot pay, Do NOT panic or bury your head in the sand. You should remember that it is not in their interests to force your business to close just because you have not paid all your tax.
The tax authorities know that businesses behave differently from individuals when it comes to tax. If companies can’t pay, it will be because they are trying to keep the business afloat rather than splashing it out on flash cars or thinking that it shouldn’t apply to them. Business people tend to be optimistic about the future and believe they will be able to pay back taxes later on.
What are the next steps?
So, if you are having trouble paying, the most important thing to do is tell them and be very clear about the situation. It might be a good idea to put it in writing why you are having difficulties and what you are looking to do to try and pay it back. The tax authorities do have a surprising amount of discretion sometimes.
Tax collection is usually handled by geographic area and there can be a wide range of attitudes. Some of our clients have been treated very harshly and others very leniently, indicating there is a certain amount of luck in it. However, you will always be treated more sympathetically if you have kept up to date with all the necessary filings and deadlines.
Think about it, if you’ve been consistently late in filing the relevant forms and causing delays for everyone, you should not be surprised when you ask them for a favour and they are less inclined to help. Poor record keeping just indicates to the tax authorities that the reason behind your business problems is you, not late payers.
Sometimes it is a good idea to hire consultants who have experience in dealing with the tax man to review the business. The fact that you have recognised you need help sends a strong signal that you are serious in your intention to sort out the business’s problems. In addition, consultants will have a fresh pair of eyes on the business and they are unlikely to make promises they cannot keep. This rebuilds trust with the tax authorities.
Images: ”Tax Time/ Shutterstock.com“
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Working well with the authorities lowers stress levels and helps you focus on building a successful business.