# How do PAYG instalments work for tradies in Australia? > PAYG instalments are quarterly pre-payments of your income tax. Here's who has to pay them, when they're due and how to keep the amount fair. Source: https://www.invogo.com.au/resources/payg-instalments-for-tradies Category: GST & Tax | Published: 2026-10-26 | Author: Invogo Team ## Key takeaways - PAYG instalments are advance payments towards your income tax, credited against your final tax bill. - Sole traders are entered when their last return shows instalment income of $4,000 or more, tax payable of $1,000 or more and notional tax of $500 or more (as of October 2026). - Quarterly instalments are due 28 October, 28 February, 28 April and 28 July. - The instalment rate method lets your payment rise and fall with your actual income each quarter. - You can vary your instalments if you expect to earn less, but varying too low can attract a penalty. PAYG instalments are advance payments towards your income tax that the ATO asks you to make during the year, usually every quarter. If you're a sole trader, you're normally pushed into them once your last tax return shows business or investment income of $4,000 or more, tax payable of $1,000 or more and notional tax of $500 or more (as of October 2026). Quarterly payments are due on 28 October, 28 February, 28 April and 28 July. ## What are PAYG instalments for tradies? PAYG instalments are pre-payments of your income tax, so you don't get one huge bill after you lodge your return. When you work for an employer, tax comes out of each pay. As a sole trader nobody withholds it, so the ATO collects it in instalments instead. Each instalment is a credit against your final tax bill. If you pay too little, you owe the difference at tax time. If you pay too much, you get the extra back as a refund. It isn't an extra tax. ## Do I have to pay PAYG instalments? You are entered automatically once your most recent tax return crosses all three ATO tests for individuals and sole traders (as of October 2026): | Test | Threshold | |---|---| | Instalment income (gross business and investment income, excluding GST and capital gains) | $4,000 or more | | Tax payable on your latest notice of assessment | $1,000 or more | | Notional tax (the ATO's estimate of tax on that income) | $500 or more | In practice, most tradies who have been going for a full year will meet these tests. The ATO writes to you, and the instalments appear on your activity statement. You can also ask to start voluntarily. Companies have a separate test. If you've set up a company, see [sole trader vs company for tradies](/resources/sole-trader-vs-company-tradies). ## When are PAYG instalments due? Quarterly instalments are due 28 October, 28 February, 28 April and 28 July. They cover the quarters ending 30 September, 31 December, 31 March and 30 June. If a due date falls on a weekend or public holiday, you generally have until the next business day. If you also report GST on a quarterly BAS, the instalment sits on the same form. Our guide to [BAS for sole traders](/resources/bas-for-sole-traders) covers how the form works. ## How much are my PAYG instalments? You pay either a fixed dollar amount or a percentage of your income, depending on the method on your activity statement. - **Instalment amount.** The ATO works out a fixed figure from your last return, and you pay that same amount each quarter. It's easy to plan around, but it doesn't change when your income does. - **Instalment rate.** The ATO gives you a percentage. Each quarter you multiply your actual instalment income (what you invoiced, excluding GST) by that rate. A quiet quarter means a smaller payment. Worked example on the rate method: if your rate is 20% and you earned $30,000 excluding GST in the quarter, that quarter's instalment is $6,000. The rate method suits tradies with lumpy income, because the payment follows the work. You can usually choose it on your activity statement if the ATO has offered you a rate. ## What if my income drops? You can vary your instalments if you expect to earn less than last year, so you aren't paying more than you'll owe. You can do this on your activity statement or through your registered tax agent. Be careful. If you vary too low and your tax ends up much higher, the ATO can charge a penalty on the shortfall. Only vary when you've got real numbers behind it, and ask your accountant if you're unsure. ## How do I set money aside for PAYG instalments? Move a fixed share of every payment into a separate account the day you're paid. Many tradies hold back 25 to 30 per cent of what they bring in as a starting point to cover PAYG, GST and the end-of-year tax bill. That's a rule of thumb, not an ATO figure, so ask your accountant what suits your income. Clean records make this easy. You need to know what you invoiced, what you were paid and what GST was in it. Invogo lists every invoice with its GST and payment status, so your quarterly instalment income is a quick tally rather than a shoebox job. The free plan covers 5 invoices or quotes a month. [Start free](/signup). Keep those records for the period the ATO requires; see [how long tradies need to keep business records](/resources/business-record-keeping-tradies). ## What happens if I pay late? The ATO can charge general interest charge on unpaid amounts, and the charge compounds daily. The rate changes each quarter, so check the ATO website for the current figure. If you can't pay on time, contact the ATO before the due date. They offer payment plans, and asking early usually goes better than going silent. General information, not advice; check with your accountant or the ATO. ## Frequently asked questions ### Are PAYG instalments an extra tax? No. They are pre-payments of your income tax. Each instalment is credited against your final tax bill, and any overpayment comes back as a refund. ### Where do I report PAYG instalments? On your activity statement (BAS). If you report GST quarterly, the instalment is on the same form. ### Can I choose to start PAYG instalments? Yes. You can ask to start voluntarily, even if you haven't met the ATO's automatic entry tests. ### Do PAYG instalments include GST? No. Instalment income excludes GST. GST is reported and paid separately on the same activity statement. ## Sources - [When are PAYG instalments due? (ATO)](https://www.ato.gov.au/businesses-and-organisations/income-deductions-and-concessions/payg-instalments/when-are-payg-instalments-due) - [Starting PAYG instalments (ATO)](https://www.ato.gov.au/business/payg-instalments/starting-payg-instalments/)