Pay As You Go Instalments (PAYG Instalments) is the Australian Tax Office’s way of making us prepay our income tax during the year. This means that when you lodge your Income Tax Return for your small business, any PAYG Instalments paid during the year will be a credit against the Income Tax calculated.
So, although no one likes to pay tax, PAYG Instalments helps avoid or reduce the lumpy tax payments at year end. Generally, this is paid through the Business Activity Statements each quarter and the ATO gives two options to calculate how much to pay:
- PAYG Instalment Amount (this is a fixed dollar amount they provide)
- PAYG Instalment Method (this is a % that you apply to business or investment income)
Registration for PAYG Instalments will be triggered once the ATO sees your income tax return includes business or investment income (eg dividends, interest, partnership or trust distributions) and, if you are a sole trader, when your income from these sources is more than $4,000. Continue reading “Tax Tips Tuesday – What are PAYG Instalments?”
A client sent me an interesting link the other day. It was about outsourcing and the tasks that startup CEO’s should outsource. And one of the key points was to outsource accounting.
I love it how they have talked about the things to outsource including HR, office decorations etc. But that part about outsourcing accounting made it for me so I have reproduced the section below:
“In fact, spending time on financial anxieties or exhilarations brings along huge opportunity costs, especially for a skilled CEO, whose time is infinitely valuable to their startup’s success. If you’re tempted to tinker – or even if you aren’t – limit yourself to P&L check-ins. Your one big goal is growth, right? Feed it one big metric to match. Continue reading “Startup CEO’s should outsource accounting”
Most small business are required to pay GST on a quarterly basis. A problem we see a number of small businesses encounter, particularly startups, is that cashflow can been a little tight when the end of the quarter comes around.
An important issue to remember is that when charging customers, the additional 10% invoiced as GST shouldn’t be considered as income or money coming in. The reason is that it will end up being paid to the ATO at the end of the quarter. This is easy to forget, particularly when decisions need to be made about paying yourself or making investments for the business and you look at your bank balance to see what you can spend.
To assist in dealing with this cashflow issue at the end of the quarter, some small businesses put the 10% aside into a separate bank account as soon as the income is received. By doing this, the funds are kept away from the general bank account.
At the end of the quarter, when the BAS is prepared, it is very likely that the GST put aside may be too much because it doesn’t account for the GST refundable on the expenses incurred. So rather being short on cash at the end of the quarter there would actually be a little extra, which has been saved in the separate account. This system works well with a number of small businesses and startups.
Other times, we see business who receive monthly performance summaries as part of a Nudge package look at what they owe the ATO at the end of each month and set that money aside.
Either way, these businesses are planning for the future by managing GST as part of their small business cashflow.
This Tax Tips Tuesday is brought to you with love by Nudge Accounting.
In last month’s issue of Dynamic Business Magazine, I co-authored an article based on some research I did with UTS. We interviewed over 700 small businesses (size: 0-20 employees) – you can check out the article at http://ow.ly/dwISk.
One of our key findings was that almost half of small businesses do their own bookkeeping and accounting. Why? The main reason really came down to money and affordability.
Another interesting observation was that over 90 percent of small businesses used their end of year financial statement to work out how well their business performed.
These two findings really tie in with the Nudge story. By doing all the monthly bookkeeping, accounting and tax for small business at really affordable rates, we empower small business to make great decisions for their business now, not months or years in the future. And by doing everything, we can give the night back to small business. Read more about our story here.