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Payg installments for sole traders

PAYG for Sole Traders Explained

One of the most daunting parts of starting (or even running) your own business is the prospect of facing unknown tax requirements somewhere down the line. In order to help sole traders from being hit with a hefty tax bill at the end of the financial year, the ATO uses a system called Pay As You Go, or PAYG.

However, for sole traders, making the most of PAYG straightaway can feel complicated or unclear.

Here is an explanation of exactly what PAYG instalments are, how to use it and what you need to keep in mind.

What is PAYG instalment?

Very simply, PAYG instalments allow you as a sole trader to pay your tax in chunks throughout the year.

Paying tax in quarterly instalments has benefits of simplifying budgeting, smoothing your cashflow and avoiding a large yearly tax return bill.

Then, when it comes to the end of the financial year and you need to lodge your tax return, all the PAYG instalments you have paid throughout the year will offset your tax. Easy!

PAYG instalments should not be confused with PAYG withholding – which is where an employer pulls the tax from an employee’s pay cheque and gives it directly to the ATO.

How do I start using PAYG?

As a sole trader you are not automatically registered for PAYG instalments. New businesses can voluntarily enter the PAYG system using their myGov account linked to the ATO by going to ‘Tax’ section, selecting ‘Manage’ then ‘Enter PAYG instalments’.

If you don’t voluntarily start using PAYG, you will automatically be entered in the system once you lodge a tax return where your sole trader business income is above the entry threshold.

How to calculate PAYG instalment?

In order to use PAYG, the ATO requires an estimate of your annual income and deductions. So, you can either:

  • Use an estimated tax rate created by the ATO based on a previous income year. This is the ideal scenario if you don’t expect any major changes in your business from the previous year. 
  • Use your own estimate. If you are starting your business from scratch or expect changes to your income, this is probably necessary. But don’t worry, there’s a calculator for this one – use the PAYG Instalments calculator to predict your PAYG rate ahead of time.

Once you are set up with PAYG, make sure you don’t miss a payment due date.

PAYG instalment due dates:

Financial Quarter Period Due date
1 July–September 28 October
2 October–December 28 February
3 January–March 28 April
4 April–June 28 July
PAYG instalment due dates

Once you are registered to for PAYG Instalments, the ATO will send you an activity statement or instalment notice at the end of each quarter. Keep an eye out for those because you don’t want to miss a payment date. If you lodge your activity statement electronically, you may be eligible to lodge two weeks later.

Never miss a due date

Use easy and intuitive accounting software such as Cashflow Manager to make paying PAYG instalments a breeze. Cashflow Manager’s system is designed for small business owners and sole traders who don’t have any previous accounting experience.

With Cashflow Manager, you can complete your PAYG Instalments (and Business Activity Statement) within the program in just a few clicks. Plus, track your money-in and money-out accurately and easily to keep your business operations running smoothly.

Try Cashflow Manager GOLD for 30 days free (no credit card required).

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