Struggling to keep up with your ATO payment plan? You’re not alone.

Many Australian trade businesses establish payment plans with the Australian Taxation Office (ATO) to manage tax debts. However, a significant number fail to complete these plans, leading to financial instability, additional penalties, and even the risk of insolvency.

So why do so many businesses struggle to keep up with their ATO payment plans, and what can you do to avoid becoming one of them?

How many businesses struggle with ATO debt?

The ATO reports that small businesses account for over 65% of total collectable tax debt, with tax arrears rising to over $50 billion as of late 2023. A large portion of this debt belongs to trade businesses that have entered into payment plans but were unable to complete them.

The ATO has been increasing pressure on businesses to clear outstanding tax debts, meaning businesses that fail to stick to their agreements could face serious consequences, including legal action.

Why businesses fail to complete ATO payment plans

1. Cash flow problems: Many tradies rely on irregular income, meaning they struggle to keep up with consistent payments.

2. Overcommitting to payments: Some businesses agree to payment terms that are unrealistic, leading to missed instalments and penalties.

3. Poor financial planning: Without a clear cash flow system, it’s easy for tax obligations to fall to the bottom of the priority list.

4. Unexpected expenses: When urgent repairs, equipment purchases, or slow months happen, ATO payments often take a back seat.

5. Ignoring the debt until it’s too late: Many tradies wait until tax time to think about payments, only to find they owe far more than expected.

How to avoid defaulting on your ATO payments

1. Know your numbers: Regularly review cash flow, expenses, and tax obligations to stay ahead.

2. Negotiate realistic payment terms: Don’t agree to an ATO plan that will stretch your finances too thin.

3. Set aside tax money weekly: Transferring a percentage of your income to a separate tax savings account ensures you always have funds available.

4. Use accounting software: Tools like Xero or MYOB can help automate tax tracking and prevent unexpected shortfalls.

5. Communicate with the ATO: If you’re struggling, don’t ignore it - the ATO is more likely to adjust your plan if you reach out before defaulting.

ATO debt doesn't have to be a killer - but failing to plan for it can be

Too many tradies enter payment plans without a real cash flow strategy, leading to missed payments, penalties, and unnecessary stress. Managing tax, BAS, and business expenses the right way can keep you in control of your finances instead of scrambling when payments are due.

Inside our Small Business Foundations Course, we teach tradies how to stay ahead of tax obligations, set aside money for BAS, and manage cash flow properly - so you’re never caught off guard. Don’t let tax debt control your business - click the link above and start getting your finances in order today.