It’s been six months since the hard deadline for businesses with nineteen or fewer employees to switch to single touch payroll reporting. Since then, more than 462,000 firms have signed up for STP-enabled software.
However, adopting a new process can be a little tricky, and with the end to the financial year fast approaching, businesses need to make sure they’re in line with the Australian Tax Office (ATO) requirements. In this article, we break down the key points that small businesses need to know about for single touch payroll reporting, as well as how to provide information to the ATO.
What is Single Touch Payroll reporting?
Single Touch Payroll (STP) is the new, official way for Australian employers to report information about tax to the ATO. As of July 2019, small businesses must use STP compliant software to lodge their employee’s salary, wage tax and superannuation information, as well as pay as you go (PAYG) withholding.
Do micro employers need to use STP-enabled software?
Micro employers need to use STP-enabled software to lodge tax reports. Even if the business has less than four members of staff employed, it is still a requirement to follow the ATO’s new process.
There are plenty of low-cost or no-cost payroll solutions available for businesses of this size that include the basic requirements for tax reporting.
When should small businesses be STP ready?
Employers with 5-19 employees should start reporting through STP-enabled payroll software immediately. ATO released a reporting checklist to help businesses adapt to the new process. In the case that a business needs extra time to fully-transition over, they can use the online form to apply for a deferral.
If a business operates in an area with intermittent or no internet connection, they (or their agent) can apply for an exemption.
What are the main changes?
Previously, businesses reported this information once a year, and many employers would lodge their information via paper or manual submission.
Here are a few other noteworthy changes:
- Employers aren’t required to give their staff a payment summary or income statement for the information reported through STP. They must, however, provide employees with information that isn’t reported through STP.
- Employees who no longer receive a payment summary or income statement can find the information needed to complete their tax return via through myGov via ATO Online.
- Businesses don’t need to submit a payment summary annual report (PSAR) anymore for the information reported through STP.
What are the main benefits of moving to STP?
Employers will benefit from Single Touch Payroll reporting in several ways:
1. Less room-for-error
The ATO pre-fills several fields in the reporting forms. It pre-fills PAYG withholding payroll fields W1 and Q2 in the BAS, making it easier and quicker to complete.
2. Fewer steps in the process
Employers are no longer required to provide payment summaries to staff members because the information is available to them on the myGov website. Real-time information, such as year-to-date payments and contributions made to the ATO, is instantly accessible and employees don’t need to wait for a payment summary.
3. Quicker onboarding of new staff
Instead of manually filling out paper forms, employers can onboard new starters through an online commencement form, including Tax File Number Declaration and SuperChoice.
The new process is much more manageable because it coincides with payroll. Instead of submitting a sizable report once a year in July, employers submit reports during every pay run. This enables them to gain back valuable time around the end of the financial year.
What are SMEs required to report?
According to the Government of Western Australia, single touch payroll requirements include monthly (or quarterly) business activities and instalment activity statements. It also includes financial year-end reporting.
Below, we cover the need-to-knows for each type of report:
Business activity statement (BAS)
The business activity statement (BAS) provides critical tax information and enables businesses to pay:
- Goods and services tax (GST)
- Pay as you go (PAYG) instalments
- PAYG withholding tax
- Any other relevant tax obligations.
The ATO automatically sends businesses a BAS when it’s time for them to lodge, as long as they’re registered with an Australian business number (ABN) and GST. All businesses registered for GST must submit a BAS before the due date.
Instalment activity statement (IAS)
The IAS report is similar to the BAS report. The difference is that it is without GST and some other taxes. If a business isn’t registered for GST, they’ll submit an IAS to pay PAYG instalments.
The financial year reporting for tax purposes runs from 1st July to 30th June. Businesses must lodge an income tax return to cover this period. Sole traders can declare their business income as part of their personal income tax return.
Common mistakes to watch out for
James O’Halloran, the deputy commissioner of ATO, revealed in a recent speech he made at PwC’s payroll managers forum that the majority of small companies (82%) correctly lodge STP reports on time.
However, some common errors have emerged since the hard-deadline for STP adoption. This includes:
- Incorrect electronic fund transfer codes (these enable BPAY).
- Multiple identification numbers being provided.
- Late tax reports.
Ultimately, ATO is unable to accept these records. However, O’Halloran said the ATO is looking to offer extra support to SME during their transition over to the new process:
“We’re working through the data and gaining insights that help us identify when employers are falling behind with their PAYG withholding or SG obligations. We’re also using the insights and learnings from health checks to support a range of stakeholders who report through STP. We do this by working directly with software and solution providers to validate the information being received.”