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Understanding Pay As You Go Instalments

Pay As You Go (PAYG) instalments is a taxation system used by the Australian Taxation Office (ATO) to help businesses manage their tax obligations. For businesses to navigate the complexities of the Aussie tax system and ensure correct compliance, it’s crucial to understand Pay As You Go instalments.

In this blog post, we will delve into the key aspects of PAYG, addressing common questions that we’re asked at Go Figured Bookkeeping such as what PAYG is, why businesses pay them, whether adjustments are possible, and their role in Business Activity Statements (BAS) and Activity Statements.

If you need to discuss more about Pay As You Go instalments, get in touch with our wonderful team of Brisbane bookkeepers at Go Figured Bookkeeping today by calling us on 07 3608 4206 or reaching out online!

Pas As You Go Instalments

PAYG Instalments is a system designed to help businesses manage their income tax liabilities by making regular payments throughout the year. It is part of the broader PAYG system, which includes PAYG withholding and PAYG annual instalments. With PAYG Instalments, businesses pay an estimated amount of their expected income tax liability in instalments throughout the income year.

Why Am I Paying PAYG Instalments?

Businesses pay PAYG as a way to meet their income tax obligations progressively, rather than in a lump sum payment at the end of the financial year. This helps in smoothing out cash flow and avoiding large tax bills – reducing business stress where possible. The ATO calculates the instalment amount based on the business’s reported income and adjusts it as needed to reflect changes in income or economic conditions.

Can Pay As You Go Be Adjusted? How?

Yes, these instalments can be adjusted if the business’s circumstances change. Businesses can vary their Pay As You Go instalments if they expect their actual income for the year to be significantly different from the ATO’s estimate. Adjustments can be made upward or downward, providing flexibility to align payments with the business’s financial reality. This can be done through the business activity statement (BAS) or the ATO’s online services.

PAYG Instalments on BAS & Activity Statements

These instalments play a crucial role in the preparation of Business Activity Statements (BAS) and Activity Statements. The BAS includes a field for reporting instalments paid during the period. To ensure compliance with tax regulations, it is essential for businesses to report these payments accurately each time.

A BAS Agents Role

When it comes to making changes to the BAS, this is up to the BAS agent alone – having the BAS calculate the correct PAYGI based on the information. In saying that, it is not the permitted role of a BAS agent – or any contractor that is not a Tax Agent – to advise on what a new PAYGI rate should be.

A BAS Agent needs to receive instructions from the correctly authorised person within a business (or the business’s Tax Agent) regarding the new PAYGI rate or outcome. The BAS Agent can then amend the rate on the BAS.

Choosing the Most Suitable Method for Your Business

This is going to depend on a number of factors, including the following:

Income Stability: If your businesses income is relatively stable and consistent year to year, the Instalment Amount method may be the most convenient solution. This is because it simplifies payment obligations.

Income Variability: For businesses where income is fluctuating regularly, the Instalment Rate method offers optimal flexibility, allowing adjustments to payment in accordance with actual earnings.

Accuracy: If a business has the capacity to make reasonably accurate income projections, the Instalment Rate method may be of help in the sense of avoiding overpaying or underpaying on tax.

Speak to Go Figured Bookkeeping Today!

Speak with our team today about PAYG, activity statements, or about our BAS agent services by calling us on 07 3608 4206 or emailing us directly at [email protected] with any questions you may have. We’re here, and happy to assist!

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