Today, most businesses have adopted electronic payment services, in reaction to the shift towards a cashless society. However, some stores have stuck to a cash-only payment policy. The operation of both options have their pros and cons, but what about the legality of operating as cash-only? If tax evasion is found, serious legal repercussions may follow.
Reasons for Cash-Only
The size of a business largely determines whether electronic payments are viable. A common fear amongst small businesses is that the bank charge for card payments are too expensive, which will lead to a loss. Further, they are afraid of transactional delays when the bank approves of the payment.
Depending on which area of Sydney you’re in, you may find yourself in an increased “cash-only” zone. This is primarily due to one of the main reasons that small businesses stay loyal to cash-only payments: to serve the community. Often, they want to cater to those who don’t have a bank card. It may seem quite rare for someone to not have a credit/debit card in Sydney. However, there are a few particularly low socio-economic areas where consumers can only pay in cash. Further, the environment in which the business is operating can affect this. For example, flea markets or farmers’ markets often have cash-only vendors.
However, the Australian Taxation Office (ATO) reported in 2018, that over 40% of cash-only small business owners have never investigated electronic payment systems before. Hence, let’s explore the benefits below…
Benefits of Electronic Payments
2018 research from the ATO has found that consumers view electronic payments more convenient and secure. Additionally, almost 50% of consumers describe businesses that have no electronic payment option as “inconvenient”. From their research, consumers also associate ‘cash-only’ as negative, which can taint a business’ reputation. Further, two-thirds of respondents believe that cash-only businesses are likely to be paying less tax than they should. Thus, consumers question their honest conduct and are driven to competitors.
Further, it seems evident that a business reaps benefits as well. 75% of businesses surveyed by the ATO believe that electronic payments can save costs, increase efficiency and improve record keeping. Also, tap-and-go payments are nearly twice as fast as cash payments. Additionally, allowing for card payments increases the amount a consumer spends, thus increasing revenue.
Legal Issues
In a speech delivered last month in the Tax Institute’s national convention, ATO commissioner Chris Jordan claimed small businesses are the worst offenders when it comes to dodging tax.
The ATO is aware that this may not be the case for all small businesses. At the bare minimum, a company should be able to produce accurate record keeping and standard registrations such as for GST and an ABN.
An increase of random audits occurred during 2017-2018 to crack down on primarily small businesses. The ATO conducted 11,000 business audits and forced about 7 out of 10 businesses to increase the amount of tax paid. It resulted in almost $200 million in tax and penalties. Despite this large sum, the ATO estimates that this is only a small fraction of tax that is still outstanding. Read Why Keeping Accurate Financial Records for Your Business Matters.
Conclusion
Operating a cash business is fine, as long as all transactions are recorded and honest. Tax evasion is illegal and can be identified by the ATO through their database. The ATO receives information from every business in Australia so it’s able to build up a profile of a typical business in any geographical area. Therefore, if a company falls outside the normal range, this instantly raises red flags.
Manual record keeping can be tedious, lengthy and difficult. Therefore, a small business should definitely consider adopting electronic payments because it can make transactions quicker and more accurate. Further, most technology can be integrated into accounting software such as MYOB. This makes your job easier and helps a business in producing more accurate records. In an increasingly cashless society, it’s important for a business to weigh out the pros and cons of having an electronic payment option.
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