In the pursuit of debts.
After putting a hold on debt collection due to COVID, the ATO is resuming debt recovery action and issuing director penalty notices. Since April 2022, the ATO has sent tens of thousands of letters to directors notifying them about impending action. Director penalty notices (DPNs) have been issued to directors who have not replied to the ATO letters and have not otherwise engaged with the ATO about their debts.
The Accountants Daily also reported in early August that DPNs were being issued at a rate of 120/day. That’s a frighteningly large amount.
What is a Director Penalty Notice (DPN)?
As the director of a company, you are responsible for ensuring that the company’s tax and super obligations are reported and paid on time. If you as the director fail to meet a PAYG withholding, GST or SGC liability in full by the due date, you can become personally liable for director penalties equal to the amount owed.
But before the ATO can take action to recover penalties from you personally, they must first issue a DPN stating the unpaid amounts and remission options available. If you fail to comply, you are stepping into dangerous territory which may include offsetting personal tax credits or initiating legal proceedings.
Avoid at all costs!
There are 2 types of DPNs you should be aware of.
Lockdown DPNs are issued to directors who fail to lodge business activity statements, instalment activity statements and/or superannuation guarantee statements within three months of their due date for lodgement. The only option for directors to avoid personal liability is if, within 21 days of the DPN being issued, the company pays the debt, appoints an administrator, appoints a Small business Restructuring Practitioner (SBRP), or places the company into liquidation.
Non-lockdown DPNs are issued to directors who lodge their business activity statements, instalment activity statements and/or superannuation guarantee statements within three months of the due date, but the PAYG withholding, net GST (including WET and LCT) and/or SGC debts remain unpaid.
Talk to us about your business liabilities
Are you clear about what you owe to the ATO? Are you aware of the extent and financial implications of your personal liability? Have you given director guarantees to any suppliers that might increase your individual liability? Are your ASIC details correct? If a notice is issued to an incorrect address listed on ASIC, legal recovery will go ahead whether the director receives the notice or not, if contact is not made within 21 days of the letter’s date.
It is extremely important to ensure you are aware of your company’s ATO debts and are actively engaging with the ATO to get this debt paid. If you have received a letter from the ATO debt recovery, talk to us so we can look at the available options with you.