This article was originally published on 27/02/23.
In this article, we break down the key points that small businesses need to know about Single Touch Payroll (STP) reporting, STP phase 2, and how to provide information to the Australian Tax Office (ATO).
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Single Touch Payroll reporting is vital for small to medium-sized enterprises (SMEs) as it ensures compliance with ATO regulations, streamlines the reporting process and enhances transparency between employers and staff. As of January 2022, STP expanded to Single Touch Payroll Phase 2, making it more important than ever for companies to be up-to-date in complying with the ATO's latest reporting requirements.
In this article, we explain everything companies need to know about STP reporting, the payroll tools required and the benefits of STP for smaller businesses.
What is Single Touch Payroll reporting?
Single Touch Payroll (STP) is the 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, and pay-as-you-go (PAYG) withholding.
What is Single Touch Payroll Phase 2?
Single Touch Payroll Phase 2 (STP2) expands on the initial STP reporting framework and enhances payroll reporting for businesses in Australia. Introduced in January 2022, a notable feature of STP2 is the ability to report additional data elements related to financial transactions. This provides the ATO with more comprehensive information. Phase 2 also aims to simplify further and automate reporting processes to make it easier for businesses to meet their obligations.
According to the ATO, the benefits of STP2 for employers include:
- No longer having to send employees tax file number (TFN) declarations. Employees provide their TFN to the company, which is stored in their record
- For employers using a concessional reporting option, they can tell the ATO through reporting income types
- If making a Lump sum E payment, employers won't need to provide the Lump sum E letters to employees. It will be included in the amount and period it relates to
- If companies change software or employee's payroll ID, this information can be shared in the STP report. This helps the ATO to fix issues with duplicate income statements for employees in online services through myGov
Some of the changes made under Phase 2 can help the ATO streamline interactions for employees. For example, it's easier for employees to file their individual income tax returns. The ATO can inform workers if they have provided incorrect information to their employer to avoid getting a tax bill.
Do micro employers need to use STP-enabled software?
Micro employers in Australia, businesses with one to four employees, were granted exemptions from the requirement to use STP-enabled software. Instead, they were allowed to use a simplified STP reporting solution known as STP micro-reporting.
STP micro-reporting involves submitting payroll data on or before each payday through a low-cost or no-cost solution. The ATO has provided a list of no-cost and low-cost STP solutions that micro-employers can use to meet their reporting obligations. These solutions are typically more straightforward and affordable than full-featured STP-enabled payroll software.
However, it is worth noting that regulations and requirements can change over time. It's essential to check with the Australian Taxation Office (ATO) or relevant government authorities for the most up-to-date information on STP reporting requirements for micro employers.
When should small businesses be STP ready?
Small businesses with five to 19 employees are required to be STP ready. The deadline for these employers was July 1st 2019. However, the ATO provided a transition period for small employers to prepare. They were allowed to start reporting through STP from July 1st 2019, until September 30th 2019, without facing penalties for late reporting.
It's important to note that most small businesses in this category should now be STP ready, having met these requirements. The ATO has an STP checklist to help companies prepare.
Micro employers had an extended transition period and were required to be STP ready on July 1st 2021. They were allowed to transition into STP reporting later than larger small businesses.
What are the benefits of Single Touch Payroll reporting?
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 data, such as year-to-date payments and contributions made to the ATO, is instantly accessible, and workers 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 latest 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 regain valuable time around the end of the financial year.
What are SMEs required to report?
According to the Government of Western Australia, STP requirements include monthly (or quarterly) business activities and instalment activity statements. It also includes financial year-end reporting. Here, 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 to lodge, as long as they are registered with an Australian business number (ABN) and GST. All companies 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.
Single Touch Payroll reports and STP2 have several advantages for companies, including simplified reporting, reduced compliance burden and simplified year-end reporting. These benefits can help both employers and employees manage payroll and financial data more effectively and ensure compliance with tax and superannuation obligations.