If you’re a business owner or work in payroll, you’re probably aware of the importance of meeting your Pay As You Go (PAYG) withholding obligations. The ATO reviews PAYG withholding cycles annually to ensure they align with your business’s annual withholding amount. Starting from 1 July 2025, some businesses may see changes in their withholding, reporting, and payment obligations. The ATO will notify affected businesses in April 2025 to inform them of any changes to their PAYG withholding cycle. If your business is impacted, you’ll need to update your payroll software to reflect the new reporting and payment requirements.

What Triggers a PAYG Cycle Change?

Every year, the ATO reviews your PAYG withholding cycle based on your business’s annual withholding amount. If your withholding payments have increased since the last review, your cycle may change. Businesses are classified into different withholder statuses based on the annual withholding amount:

Small Withholders: Withhold $25,000 or less annually and report quarterly.

Medium Withholders: Withhold between $25,001 and $1 million annually and report monthly.

Large Withholders: Withhold more than $1 million annually and must pay electronically within six to eight days of the withholding event.

If your business moves from a small to a medium or medium to a large withholder status, you’ll need to adjust your reporting and payment processes accordingly.

Preparing for the Change

If your withholding status is set to change, it’s crucial to update your payroll software before 1 July 2025 to align with the new due dates. The ATO will notify you in April if your cycle is changing, giving you time to prepare for the new financial year.

If your estimated PAYG withholding for 2025–2026 is below the new threshold, you may request to remain on your current cycle. To do this, you must submit a Request to Remain on a Lower Withholding Cycle form within 21 days of receiving the ATO’s notification. You’ll need to provide detailed reasons and estimated withholding amounts. Keep in mind that requests based on reasons like remote business location, cash flow difficulties, or administrative costs won’t be approved.

If you need assistance with changing your withholding cycle or requesting to stay on a lower cycle, you can contact the ATO or consult your registered tax or BAS agent.

Understanding the Implications

For medium withholders, moving to monthly reporting can streamline cash flow management and ensure compliance. Large withholders will need to manage more frequent payments and ensure accurate reporting through Single Touch Payroll (STP). The ATO assigns a new Payment Reference Number (PRN) for large withholders, which must be used to ensure that your withholding amounts match the figures reported.

Additional Considerations

Your withholding obligations cover various payments, including those to employees, directors, and certain contractors. It’s important to distinguish between employees and independent contractors, as the withholding rules differ for each. Payments like investment income and royalties may also require withholding.

Staying Compliant

If you’re unable to meet your withholding obligations, it’s important to contact the ATO immediately to discuss your options. For large withholders, if there’s a net GST credit, it can be offset against the PAYG withholding liability, offering flexibility in managing payments.