If you’re paying taxes through the Pay As You Go (PAYG) system as a sole trader, you might need to adjust your instalments if your circumstances change or your income varies throughout the year. Read more to find out if you need to adjust your PAYG instalments.
Change in income will affect your PAYG instalments
Significant changes in your income (both increases and decreases) will affect how much tax you’re obligated to pay. You may lose your job or suffer a physical disaster during the year. Similarly, you could also decide to expand your business, buy another business or invest in a rental property.
Change in circumstances will affect your PAYG instalments
Changes to your personal circumstances can also impact your tax obligations. Marriage, having a child or travelling could affect your earning potential.
Pro Tax Tip: It’s essential to keep accurate records of your income and expenses throughout the year so you can calculate your PAYG instalments correctly. Your tax agent can advise you on what records you need to keep and how to keep them.
Increase or decrease in expenses will affect your PAYG instalments
If your deductible expenses increase or decrease, this can affect the amount of tax you owe. For example, if you start a new job that requires you to travel frequently, you may be eligible to claim work-related travel expenses as a deduction, which can lower your tax bill.
Estimated tax payable will affect your PAYG instalments
There are various way to estimate the tax you’re obligated to pay throughout the year. ITP Accounting Professionals have a tax calculator that is updated every tax year. You’ll need to enter information about your income, deductions, and other factors to get an accurate estimate.
A quick chat with your tax agent, who will review your financial data, will tell you how much tax you’re obligated to pay based on your individual circumstances. They’ll also advise what tax deductions you can make and how to make sure you’re maximising them all. If your financial situation hasn’t changed significantly since your last tax return, you can use that as a guide to estimate your tax payable for the current financial year.
PAYG instalment activity statement (IAS)
If you’re required to make quarterly payments, the ATO will send you an IAS to complete. This statement will show you the amount of tax you need to pay and the due date for payment. It’s important to complete and submit this statement on time to avoid any penalties or interest charges.
An Instalment Activity Statement (IAS) is a document that the ATO sends out each month to certain taxpayers. It’s designed for people who are not registered for GST but still need to report PAYG Instalments, PAYG Withholding, ABN Withholding, and/or FBT Instalments.
If you submit quarterly Business Activity Statements (BAS) but also need to pay PAYG withholding tax monthly because you’re classified as a medium withholder, you’ll receive an IAS.
The IAS helps you manage your tax obligations by allowing you to pay your PAYG instalments in smaller, more manageable amounts throughout the year, rather than being hit with a large tax bill at the end of the financial reporting period.
If you’re not registered for GST, you can use the IAS form to lodge your PAYG Instalments (PAYGI). By using the IAS and paying your PAYG Instalments on time, you can avoid any penalties or interest charges from the ATO.
Pro Tax Tip: It’s important to stay up-to-date with any changes to tax laws or regulations that may affect your PAYG instalments. Your tax agent can keep you informed of any changes and help you adjust your instalments accordingly.
Overpayment and underpayment
If you overpay your PAYG instalments during the year, you may be entitled to a refund when you lodge your tax return. This is because your PAYG instalments are an estimate of the tax you owe for the year, and it’s possible to overpay or underpay based on this estimate.
Payment plan for your PAYG instalments
If you’re having trouble paying your PAYG instalments, it can be stressful and overwhelming. A tax agent can help you navigate this situation and work out a payment plan with the ATO. They can liaise with the ATO on your behalf and negotiate a payment plan that’s tailored to your individual circumstances. Your tax agent can help you determine how much you owe, what payment options are available, and how to avoid any penalties or interest charges. A tax agent will advise how to manage your tax obligations going forward.
If you’ve made a mistake calculating your pay as you go (PAYG) instalment, you can still revise it even after the due date. The two ways to amend it are by revising your activity statement before the due date or varying your instalment amount or rate on a future activity statement. Keep in mind that interest may be charged on any underpayment or overpayment of your PAYG instalment.
When Are PAYG Payments Due?
- PAYG instalment due date for quarterly reporting: 28th of each quarter (October, February, April, and July)
- PAYG instalment due date for monthly reporting: 21st of each month
- PAYG annual instalment notice: Issued by the ATO in August each year
- PAYG income tax return: Due on 31st of October each year for individuals and 28th of February for businesses.
It’s essential to let the ATO know about any changes in your circumstances as soon as possible so they can adjust your PAYG instalment rate. This can help you avoid any penalties or interest charges due to underpaying or overpaying your taxes. If you’re unsure whether a change in your circumstances will affect your PAYG instalments, don’t hesitate to get in touch with a tax agent or the ATO for guidance and support.