IAS and PAYG instalments: getting the in-between months right
How to manage instalment activity statements and PAYG instalments across a client base, including varying instalments when circumstances change.
Between the quarterly business activity statements sit the instalment activity statements, and they are easy to overlook precisely because they are smaller. An IAS often reports only PAYG withholding or a PAYG income tax instalment, so it feels like a formality. That very simplicity is what makes it easy to miss a due date or lodge the wrong figure.
What the IAS actually covers
An instalment activity statement is used to report obligations that fall due outside the BAS cycle. For many clients that means monthly PAYG withholding on wages, or a PAYG income tax instalment in the months between quarterly statements. Businesses not registered for GST may use the IAS as their primary reporting statement. Understanding which obligations a given client reports on their IAS is the first step to getting it right consistently.
PAYG instalments and how they are calculated
PAYG instalments are prepayments towards a taxpayer's expected income tax for the year. The ATO generally issues either an instalment amount or an instalment rate based on the most recent lodged return. For growing businesses this creates a common problem: the instalment is based on last year's income, which may bear little resemblance to this year's result.
The full rules on how instalments are worked out are published by the ATO, and it is worth reviewing each client's instalment position at least once a year rather than accepting the pre-filled figure automatically.
When to vary an instalment
Varying a PAYG instalment is one of the more valuable services a practice provides, and one of the most under-used. If a client's income has fallen, continuing to pay instalments based on a stronger prior year ties up cash that the business needs. If income has risen sharply, sticking with a low instalment can leave a large tax bill at the end of the year.
- Consider varying down when trading has slowed or a one-off gain inflated the prior year.
- Consider varying up when profit is running well ahead of last year.
- Document the basis for any variation in case the estimate is later reviewed.
Variations carry risk if the estimate is too low, so the reasoning should be sound and recorded. This is a judgement call that rewards a proper conversation with the client rather than a mechanical acceptance of the default.
Keeping monthly and quarterly obligations straight
The real challenge with instalment statements is scheduling. A single client might have monthly IAS obligations for withholding and quarterly BAS obligations for GST, with different due dates for each. Multiply that across a client base and the calendar becomes complex quickly.
Finye handles this by generating recurring jobs on each client's specific cycle, so a monthly IAS appears every month and a quarterly BAS appears every quarter, each with the correct due date. Nothing depends on someone remembering that a particular client lodges monthly. You can see how firms structure these compliance calendars in Finye's guides.
A simple monthly routine
For clients with monthly obligations, a light but consistent routine works best: confirm the withholding figure from payroll, check whether any instalment falls due, prepare and review the statement, and lodge. Because the amounts are usually straightforward, the whole job is quick once the payroll data is reliable.
The instalments that sit between the quarterly statements are small individually, but across a full client base they add up to a real compliance load. Treat them with the same discipline as the BAS, and they stop being the obligation that slips through.