Paying your PAYG to the ATO¶

Reporting your PAYG figures is only half the job. The tax you withheld from staff and any PAYG instalment are real amounts you must pay the ATO — and there is a due date for doing it. This lesson covers what you pay, when, and why the withheld tax is money you should never treat as your own.

Why this matters¶

The tax you take out of your workers' pay was never your money. The ATO describes it as an amount you withhold to help your workers meet their end-of-year tax. If you spend it during the quarter, you can reach the due date without the cash to pay. Knowing the withheld tax is money to set aside — not spend — keeps you out of that trap.

What you will learn¶

• Which PAYG amounts you must pay the ATO
• Why withheld tax is money held on the ATO's behalf and should be set aside
• When most small businesses pay, and that some larger employers pay more often

Understanding the concept¶

There are two PAYG amounts you might have to pay.

• PAYG withholding — the tax you held back from your workers' pay. On the Activity Statement this is the W2 figure. This is not your money; it is tax belonging to your workers that you are holding and passing on to the ATO on their behalf.
• PAYG instalment — a pre-payment towards your own income tax for the year. If the ATO has put you into the instalment system, this amount also appears on your statement.

Both are due by the due date shown on your Activity Statement. If that date lands on a weekend or public holiday, the ATO lets you pay on the next business day.

Because the PAYG withholding is money held for the ATO, the safest habit is to move it out of your everyday account as you go — for example into a separate savings account — so it is ready when the statement falls due. Spending it and hoping to find the cash later is where many small businesses come unstuck.

How often you pay depends on how much you withhold. Most small businesses report and pay their withholding together with their quarterly Activity Statement. As a business withholds more each year, the ATO can move it to a more frequent cycle, so some larger employers pay their withholding more often than quarterly. The ATO tells you which cycle applies to you.

Example¶

Sam runs a small landscaping business with three employees. Each pay run, myaccountant works out the tax to withhold, and Sam moves that withheld tax straight into a separate "tax" savings account the same day. By the end of the quarter, the money for the W2 figure on his Activity Statement is already sitting there, so paying the ATO by the due date is easy — he is not scrambling to find the cash.

Sam also has a small PAYG instalment towards his own income tax. He treats it the same way, setting a little aside each time, so both amounts are covered when the statement falls due. Because his business is small, he reports and pays both with his quarterly statement.

Common mistakes¶

• Treating withheld tax as business income — it belongs to your workers and is held for the ATO.
• Spending the withheld tax during the quarter and having no cash to pay by the due date.
• Forgetting the PAYG instalment is also payable, not just the withholding.
• Missing the due date when it falls on a weekend or public holiday — you can pay the next business day, but not later.
• Assuming everyone pays quarterly — larger employers can be on a more frequent cycle.

How this works in myaccountant¶

Key points¶

• The tax you withheld (W2) and any PAYG instalment are amounts you must pay the ATO.
• Both are due by the due date shown on your Activity Statement.
• Withheld tax is money held on the ATO's behalf — set it aside, do not spend it.
• If the due date is a weekend or public holiday, you can pay the next business day.
• Most small businesses pay their withholding with their quarterly statement.
• Some larger employers must pay their withholding more often than quarterly.

Learn next¶

• Reporting tax withheld (W2)
• PAYG instalments
• Correcting PAYG amounts

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