Is Your PAYG Withholding Cycle About to Change?

What’s changing?
From 1 July 2025, some businesses may see changes to their withholding, reporting, and payment obligations. The ATO is notifying affected businesses in April 2025, so if you receive a letter, be prepared to update your payroll software accordingly.

What Triggers a PAYG Cycle Change?

The ATO reviews your PAYG withholding cycle annually based on your business’s total withholding payments. If your payments have increased, your withholding cycle may change.

Businesses are categorised into three withholder statuses:

• Small withholders: Withhold $25,000 or less annually, report quarterly
• Medium withholders: Withhold $25,001 to $1 million annually, report monthly
• Large withholders: Withhold over $1 million annually, must pay electronically within 6–8 days of the withholding event

If your business transitions from small to medium, or medium to large, you’ll need to adjust your reporting and payment processes.

Preparing for the Change

If your withholding status is set to change:

• Update your payroll software before 1 July 2025 to reflect the new cycle
• Look out for a notification from the ATO in April so you have time to prepare
• If your estimated withholding for 2025–26 falls below the threshold for your new status, you may request to remain on your current cycle

To do so, submit a Request to remain on a lower withholding cycle form within 21 days of receiving the ATO’s notice. You’ll need to provide clear reasons and detailed estimated withholding amounts. Requests won’t be approved for reasons like:

• Remote location
• Cash flow issues
• Administrative burden

For help, contact the ATO or speak with your registered tax or BAS agent.

Understanding the Implications

• Medium withholders: Monthly reporting can help smooth cash flow and improve compliance
• Large withholders: Must manage more frequent payments and ensure accurate reporting via Single Touch Payroll (STP)

Large withholders will also be assigned a new Payment Reference Number (PRN) to ensure accurate matching of withholding amounts to reported figures.

Additional Considerations

Remember, PAYG withholding applies to a variety of payments, including those made to:

• Employees
• Directors
• Some contractors

It’s essential to correctly classify workers, as withholding obligations differ for employees and independent contractors. Certain investment income or royalty payments may also require withholding.

Staying Compliant

If you’re struggling to meet your obligations, contact the ATO immediately to explore your options. For large withholders, any net GST credits can be offset against PAYG withholding liabilities, which may help ease payment pressures.