Many clients get confused between PAYG Instalments (PAYGI) and PAYG Withholding (PAYGW) payments. It is important to understand the difference because they can impact your personal and business cash flow significantly.
PAYGW (Pay As You Go Withholding)
When you pay your employees, you must withhold a certain amount of tax from their pay. You then send this tax to ATO. The ATO calls this pay as you go (PAYG) withholding.
You withhold this tax on behalf of your employees. They can claim against the amount withheld at the end of the financial year.
You may also have to withhold from payments to:
- other workers, such as contractors
- businesses that don’t give you their Australian business number.
To find out more about PAYGW see the ATO's web site
PAYGW (Pay As You Go Instalments)
When your business and investment income reaches a certain amount, you’ll pay your income tax in instalments. These payments are usually quarterly. PAYG instalments help you to avoid a large tax bill after you lodge your income tax return.
If you pay with PAYG instalments, you still need to lodge an annual income tax return.
You are likely to have to make PAYGI payments for yourself (if you receive non-wage payments) and your Company (if you have one).
PAYG Instalments for your company are normally paid via your business Activity Statement and your bookkeeper will include this figure automatically.
Personal PAYG Instalments are paid by you individually and you will be issued a separate Activity Statement for this. Only you and your Tax Accountant have access to this, so we cannot prepare and lodge this for you.
The ATO has a PAYG Instalment calculator for individuals and another one for Companies. These can be used to help work out your PAYG instalment amounts for the year. You can use it to help work out if you need to vary your instalment account.
If you have questions about the difference between these two, please let us know and we will go over it in more detail
