February tends to be the worst cashflow month for many SMEs. Mix the extra costs coming out of the holiday season, some downtime and the wind up for the new year and cash can be tight.
In the last week of January the superannuation guarantee payment for the December quarter fell due. Many SMEs did not need to pay their December payroll withholding tax in January because it can be paid with December BAS. This falls due in the last week of February.
So over the four weeks to the end of February you have your December quarter SG payment, January PAYG tax and your December quarter BAS. This can mean a lot of money heading out of your bank account.
If cash is tight there can be a temptation to delay paying or lodging your Instalment Activity Statement, your BAS or making your SG payment. If you operate through a company structure and you are a director, then be careful.
Where a company fails to pay its PAYG withholding tax or its superannuation guarantee payments the directors can be personally liable for the unpaid tax or superannuation.
Changes to legislation during 2012 have increased the risk exposure of a director.
And don’t think that you can avoid that risk by simply not lodging your returns. The legislation provides that where a company fails to lodge and pay PAYG withholding returns or superannuation guarantee payments and they remain outstanding beyond three months from the due date, the director can be personally liable.
Being a director comes with its risks. After you are appointed as a director you have 30 days to ensure that the company is current with its PAYG withholding and superannuation obligations.
Once the 30 days are up you can be ‘on the hook’. This means as a director you need to ensure that the company is compliant and up to date with its tax and superannuation obligations.
Meeting your superannuation obligations also means ensuring that all the people who should be provided for are covered.
The risk here is with subcontractors. You need to ensure that where a subcontractor is either a common law employee or a deemed employee under the Superannuation Guarantee Act, that they are provided for.
These risks rest with all directors. The fact that you are not aware of the problem or that you do not manage the accounts will not avoid your liability. Ignorance is no excuse.
There are no ‘get out of jail’ cards. It is expected that as a director you will have made appropriate enquiries to ensure that your company is up to date with its obligations.
So if cash is tight, think twice before you delay your tax payments. Look at your other options and if you are unsure of your position take some advice early.
Greg Hayes is a director of Hayes Knight and specialises in taxation & business planning advice.