We’ve all seen, and been concerned about, the media attention around the number of restaurants and cafés being liquidated. Inland Revenue have indicated that they’ve increased their debt collection activity, and that’s leading to more liquidations. The expectation is that this activity is going to keep increasing. This article explains the current landscape and provides strategies to manage tax obligations effectively.
The financial picture is sobering. According to Inland Revenue one in five restaurant and cafés have overdue tax debt. The average amount of that debt is over $30k. In total, this is more than $170 million in unpaid taxes – a lot of which is PAYE and GST, which Inland Revenue have indicated they are focused on recovering.
According to Inland Revenue they have also significantly increased their investigations and auditing. They have indicated that they’re focused on those who are actively trying to avoid their taxes – rather than the majority of operators who are, or trying to do, things right.
Triggers for IRD investigations
Sometimes action is instigated due to tip-offs received. Inland Revenue say that the tip-offs can come from a variety of sources, including from:
- customers saying the restaurant doesn’t always have a working POS device, and they suspect it isn’t reporting their cash income
- ex-employees complaining about the use of cash to pay migrant labour under-the-table, while not paying the PAYE. (This is often identified when one of those employees needs proof of income, and Inland Revenue has no record of it.)
- a person who knows a lot about the business owner, and how they spend their money – detailing holidays or large private expenses that don’t seem to match up with their income.
However, for the most part, when operators get in difficulty with debt, Inland Revenue identify that it is often a result of not keeping up with record-keeping, or, when cashflow management has become a challenge. Inland Revenue say they understand provisional tax can be hard to get right sometimes, but if GST and PAYE isn’t being passed on, business owners should consider seeking financial advice – noting that not paying PAYE is a criminal offence with some potentially severe consequences.
Options available for those who are struggling
If anyone is struggling to pay tax debts right now, Inland Revenue have indicated that they’re willing to help. Options available include:
- Setting up an instalment arrangement to pay off over time. This can be done by going to your myIR account and selecting ‘Request an instalment arrangement’ under the ‘I want to …’ column.
- If there’s no way a debt can be paid off, talk to your accountant as they may be able to negotiate something with Inland Revenue, or provide other options for managing the debt.
Hospitality is facing genuine challenges right now. If you’re concerned about being able to meet tax obligations, the key is to act early rather than hoping the problem will resolve itself when things get better. Inland Revenue has indicated they’re willing to work with businesses that engage proactively about their situation. So, if you do find yourself in difficulty the key is that the sooner you reach out – whether directly or through your accountant – the more options that will likely be available.
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