Common PAYG mistakes and how to avoid them¶

Most PAYG problems are not caused by anything complicated. They come from a handful of everyday slip-ups — forgetting a step, spending money that was never yours, or letting a due date pass. The good news is that each one has a simple check that prevents it.

This lesson pulls together the mistakes that catch small businesses out and gives you a practical "what to check" for each. Think of it as a quick review to run past your own business.

In one line

Most PAYG mistakes come from missing a step or a due date — each one has a simple check that avoids it.

Why this matters¶

PAYG mistakes tend to cost money in two ways — the tax you still owe, and the stress of fixing it after the fact. Because PAYG involves money you collect for the Australian Taxation Office (ATO), a slip does not just affect your own tax; it can affect an employee's or a supplier's records too.

Knowing where the traps are means you can avoid them before they happen, instead of untangling them later.

What you will learn¶

The most common PAYG mistakes small businesses make
A practical check to avoid each one
Why these checks protect your cash flow and keep you compliant

Understanding the concept¶

Here are the mistakes that come up most often, and what to check for each.

1. Not registering for PAYG withholding before paying staff. You are meant to be registered for PAYG withholding with the ATO before you make your first payment that you have to withhold from. What to check — before your first pay run (or your first payment to a no-ABN supplier), confirm you are registered for PAYG withholding.

2. Spending the withheld tax instead of setting it aside. The tax you withhold is money you collect for the ATO. It was never really yours to spend. If it sits in your everyday account and gets used, you can be short when the payment is due. What to check — keep the withheld amount aside so it is there when you need to pay the ATO.

3. Your W1 and W2 figures not matching payroll. On your Activity Statement, gross wages go at label W1 and tax withheld goes at label W2. The ATO can pre-fill these from your pay reports, but your payroll records are the source of truth. What to check — compare W1 and W2 to your payroll totals before you lodge, and correct the statement to match your records if they differ.

4. Forgetting to withhold from a no-ABN supplier. If a supplier does not give you their Australian Business Number (ABN) and the payment is more than the ATO's threshold, you generally have to withhold the top rate of tax and send it to the ATO. What to check — when a supplier's invoice has no ABN, check whether you need to withhold before you pay them in full.

5. Ignoring or double-counting PAYG instalments. PAYG instalments are regular pre-payments towards your own income tax, and they are different from PAYG withholding. Some businesses ignore an instalment that is due, and others accidentally count the same amount twice. What to check — treat instalments as separate from withholding, and make sure each instalment is recorded once.

6. Missing the payment due date. Reporting the right figure is only half the job — you also have to pay it by the due date. What to check — know your due date for each period and pay on time, so a correct figure does not turn into a late payment.

For accountants & bookkeepers

Several of these map to well-known ATO pain points. Registration must precede the first withholding event. Withheld amounts are trust-like — quarantining them protects the remittance. W1/W2 reconciliation to the payroll register is the control that catches pre-fill divergence; records govern over pre-fill. No-ABN withholding (top rate above the ATO threshold, reported separately on the statement) is easy to miss on ad-hoc supplier payments. PAYG instalments are prepayments of the entity's own income tax, credited on assessment — keep them distinct from PAYGW in the ledger to avoid double counting. Finally, lodgment and payment are separate obligations, each with its own due date.

Example¶

Jordan runs a landscaping business and hires his first employee, Sam. In the first quarter he does two things right and one thing wrong.

He registers for PAYG withholding before Sam's first pay — tick. He works out the tax on each pay and holds it back — tick. But he leaves that withheld tax sitting in his main account, and over the quarter he spends it on materials and fuel.

When the Activity Statement is due, Jordan reports the right figure at W2 — the tax he withheld. But the money is gone. He has to find the cash from somewhere else to pay the ATO on time, which strains his cash flow for the month.

The next quarter, Jordan changes one habit. Each time he pays Sam, he moves the withheld tax into a separate savings account. When the next Activity Statement is due, the money is already there. He also runs a quick check that W1 and W2 match his payroll before he lodges, and he notes the payment due date in his calendar. Same obligations, no scramble.

Common mistakes¶

Paying staff before registering for PAYG withholding.
Leaving the withheld tax in your everyday account and spending it.
Lodging pre-filled W1 and W2 without checking them against payroll.
Paying a no-ABN supplier in full without checking whether you must withhold.
Mixing up PAYG instalments with PAYG withholding, or counting an instalment twice.
Reporting the right figure but missing the payment due date.

How this works in myaccountant¶

In the app — myaccountant works out the PAYG withholding on each pay run and pre-fills the gross wages at W1 and the tax withheld at W2 when you prepare your Activity Statement. It reconciles those figures against your payroll and flags a mismatch, so you can catch a W1 or W2 problem before you lodge instead of after.

Key points¶

Register for PAYG withholding before your first payment you must withhold from.
Set the withheld tax aside — it is money you collect for the ATO, not income.
Check W1 and W2 against your payroll, and correct the statement to match your records.
Check no-ABN supplier invoices to see whether you need to withhold.
Keep PAYG instalments separate from withholding, and record each one once.
Pay by the due date — a correct figure paid late is still a problem.

Learn next¶

General information only — not tax, super or financial advice.

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