Welcome to the second part of our small business bookkeeping series . This series aims to explain, in plain English, the most important aspects of small business bookkeeping.
Part 1 focused on the battle of the BAS and the obligations of small business owners to really get this sorted. Today we’re looking at PAYG: pay as you go withholding and installments.
Of course you can save yourself the time and hassle and just have us do it all for you, but if you’re not quite there yet, then this info will be a big help.
What is PAYG?
Pay as you go (PAYG) withholding, is a system for businesses and individuals to make small tax payments throughout the year based on the expected tax liability on income. It allows you to more easily meet your overall tax liabilities at the end of the year, without leaving either a large credit or liability.
If your tax situation changes – perhaps you have an unusually large number of tax-deductible expenses in a given year – you can request an increase or decrease in the amount of money withheld so that it more accurately meets your tax obligations.
If you employ staff in your small business, then wages tax or PAYG withholding must be deducted from the gross wages and remitted to the Australian Taxation Office (ATO) via your Business Activity Statement (BAS) or Installment Activity Statement (IAS). It will depend on how much you pay your staff as to whether you complete and lodge on a quarterly or a monthly basis.
When your business makes a profit, and you start paying tax on this profit, then PAYG income tax installments will be payable via the BAS.
Once you have lodged your first business tax return, your business will be entered into the PAYG income tax installment system. You will then need to pay tax on your business income in the year that you earn it and this will be done via the BAS each quarter.
If you need help working it all out give us a call or email here.
You can also have a look at the ATO website which has all the info you need to meet your tax and reporting obligations.
The next post in our Small Business Bookkeeping series will look at how to deal with disbursements and deductions so your business stays on track.
This article was written by gabi