Small Business Bookkeeping Explained Part 2: PAYG Withholding & Instalments

 In ATO, employees, small business, taxation

Welcome to Part Two of our Small Business Bookkeeping Explained series! The goal of this series is to explain to small business owners, in plain english, some of the most important parts of bookkeeping for your business. 

We kicked off our series by taking a look at BAS and GST obligations of a small business owner. And now we’re going to take a closer look at PAYG, or Pay As You Go Withholding and Instalments. 

 

What is PAYG?

There’s a common misconception that there is only one PAYG. But that’s not the case at all. 

PAYG withholding is your legal requirement to keep a portion of payments made to your employees and is paid to the ATO to go towards their tax requirements.

PAYG instalments are regular payments that you make throughout the year (usually quarterly) towards your expected annual income tax liability.

 

PAYG Withholding

PAYG Withholding is for small business owners who employ staff. If you have staff, or will be employing someone in the near future, you’ll need to register for PAYG Withholding. You must register before you begin to withhold payments. So when you first decide to employ staff, it’s best to register as you begin your staff hunt so you’re ready as soon as they come on board. 

If you don’t employ staff, you won’t need to register for PAYG Withholding!

The purpose of these payments is to help your employees meet their end-of-year tax liabilities by collecting withholding amounts from payments made to your employees, and also contractors and businesses who don’t supply their ABN (which is why you must always check your contractors ABN’s!). This amount is then paid to the ATO on their behalf by you. 

You can register online for PAYG Withholding at the same time as you register for your ABN at the Australian Business Register (ABR). If you already have an ABN you can still register for PAYG Withholding at the ABR. 

Everything Else You Need to Know About PAYG Withholding

  • You need to report your PAYG Withholding on your Business Activity Statement.  
  • Payments for PAYG Withholding start off quartley but then move to monthly as the amounts of PAYG you are holding grows.
     
  • These PAYG withholding amounts are reported via the new Single Touch Payroll reporting system. 

 

PAYG Instalments

PAYG instalments aren’t scary, it is not a ‘prepayment’, it is simply paying tax as you go during the year rather than as a massive lump sum at the end of the year. 

PAYG instalments can apply to individuals, companies and super funds. However, we’re just going to be focusing PAYG instalments for small businesses via Sole Traders or Companies. 

The ATO will use your most recent tax return to determine if you’re required to join their  instalment system and then you’ll be given an instalment rate or a quarterly/monthly instalment amount.

However, if you would prefer to pay PAYG instalments, you can request to enter the system early and pay voluntarily. This will reduce your chances of having to pay a large amount at the end of the year. This can be ideal for businesses who are newer or just need a bit of help to manage payments. 

 

How Bookkeeping Services Can Help With PAYG

If you’ve read the above and you’re still confused about PAYG Withholding or Instalments and what you need to do, then you might benefit from working with a certified bookkeeper. 

We specialise in small business bookkeeping and can help you navigate how much you need to withhold, and how much your instalments should be. 

A certified bookkeeper can help your PAYG bookkeeping by

  • Register your business for PAYG Withholding or instalments 
  • Prepare and lodge your BAS documents accurately and on time
  • Calculate your PAYG Withholding amounts 
  • Determine if your instalments are correct 
  • Help you create a cashflow budget to ensure you are putting aside adequate funds to meet these liabilities 

If you want to be sure you’re correctly withholding and paying, working with a bookkeeper can help you get it all straightened out. 

For all your small business bookkeeping needs, call us today on 1300 900 938 or get in touch online for a confidential and completely free chat about your books.

Join us again for Part 3 of our Small Business Bookkeeping Explained where we tackle tax deductions. Or, if you haven’t read Part 1 yet, learn all about BAS and GST here.  

 

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