Varying Your PAYG Instalments

While COVID-19 has caused economic headaches all around the world, the good news is that varying your PAYG instalments is one way to help reduce the pressure. 

If you’re working for an Australian business as an employee, navigating the taxation system is pretty simple - your boss withholds an amount from your gross pay each week for tax purposes, you get the balance. From there, all you need to do is lodge a tax return every financial year. However, if you’re a business, there’s a wide variety of tax obligations that you need to proactively register for, with one of the most common being PAYG.

Pay As You Go (PAYG) Withholding is a program of pre-paying tax instalments towards your expected tax liability on your business and investment income. Businesses are required to register for PAYG if in their last tax return, they reported gross business and/or investment income (excluding any net capital gains) of $4,000 or more, or their adjusted balance of assessment on your last assessed tax return was more than $1,000. 

As such, it’s pretty easy to understand how an operation’s PAYG obligations can quickly add up to be one of their biggest outgoings. While PAYG instalments is a system designed to help businesses manage their expected tax liability on income generated, the option to vary these instalments is a method that’s growing in popularity as a means to cope with COVID-19 related downturns. 

Your Guide To Varying PAYG Instalments

In a nutshell, PAYG instalments is a way for businesses to avoid a hefty tax bill at the end of the financial year. However, most businesses do so based on a relatively steady income projection, based on what they can roughly expect to earn during the tax period. 

While economic conditions for small and medium-sized enterprises (SMEs) improved in the second half of 2020 and early 2021, measures to contain the recent outbreaks of COVID-19 have affected almost everyone in Australia in one way or another. Although this appears to be stabilising, brands and businesses of all shapes and sizes have been faced with a great deal of uncertainty as to what the year ahead looks like financially. 

As a result, businesses are able to vary their PAYG instalments if they think they would be paying too much tax when compared to their income generated for the 2020-2021 financial year. As an extra benefit, the Australian Tax Office has stated that they will not apply penalties or interest for any excessive variations for the 2021-22 income year. Once a business has varied down their tax rate or amount, they can also claim back a credit from the PAYG instalments they have already paid in the current financial year.

Many brands and businesses are trying to both survive and thrive in this new world. Thankfully, PAYG instalments can be varied multiple times throughout the year to reflect any changes in a brand’s financial outlook. By default, the varied amount or rate will apply for all your remaining instalments for the income year, or until you make another variation.

While there are many other business taxes that may apply to your brand or entity, some are more common than others, with a portion also requiring proactive registration. If you’re not sure about your legal or tax obligations as an entrepreneur trading in Australia, it’s always wise to speak to the professionals to avoid landing yourself in hot water - but where do you find them?

Sourcing Help With Managing Your Tax Obligations 

Whether you’re starting a business, purchasing an existing one, or even re-evaluating where your current enterprise stands - you will require some form of financial know-how if you hope to successfully navigate your legal tax requirements as well as hitting your financial and business goals. 

However, if understanding the legalities that surround your business or finances isn’t your strong point, then it may be reassuring to know that you’re not alone. In fact, many businesses (big and small) enlist the services of an accountant in order to free up their time while knowing that their financial obligations are already taken care of by the professionals. 

Ultimately, the team at Muro believe that every business owner is an entrepreneur. However, accounting does not discriminate - finances break down barriers and are not territorial. If you would like to take a deeper look into your finances, please get in touch with us at Muro today to ensure that you’re on the right path for success.