The tax office’s single touch payroll (STP) guru says there’s still a “long way to go” before hundreds of thousands of small firms are ready to make the switch to the new reporting regime, less than a month out from the soft implementation deadline.
Speaking to tax agents at Inuit’s Quickbooks Connect event last Friday, ATO assistant commissioner John Shepherd asked accountants to avoid “kicking the can down the road” and be proactive about getting their clients STP ready.
He said the ATO will be on the lookout for practices where STP deferral rates are unreasonably high, but conceded there are many “paper-based” firms struggling with making the switch.
“If we see a practice with 100% deferrals and all quite long, we’ll be asking what’s going on because that’s not spreading it out, that’s just pushing it down the road,” Shepherd said.
Wondering what the “biggest tax compliance undertaking since the GST” means for you? Check out our STP explainer.
ATO kicks off nationwide ad campaign
With the election now in the rearview mirror, the ATO will this week launch a nationwide STP marketing campaign in an attempt to raise awareness of the program as tax time closes in.
Businesses can expect emails from the tax office, while a broad-based regional radio campaign has also been commissioned for those living in remote areas.
“Awareness in those [remote] areas is still very, very low,” Shepherd said.
A YouGov galaxy survey of 517 micro-business owners in April found 70% had no idea what STP is, while a further 55% had “little knowledge” about becoming compliant.
Those findings prompted tax expert concern about what’s to come, but recently the ATO has been hamstrung by the timing of the federal election, which forced it into caretaker mode.
Overall, progress has been slow but steady so far. Last week, more than 6,000 new firms signed up for STP reporting before Thursday, at a rate of about 1,600 per day.
There are now more small employers reporting under STP than large businesses, with more than 59,000 small employers in the system as of Tuesday last week.
However, there are still about 700,000 small firms who will have to move over to the new regime, including 450,000 micro-businesses (those with between one and four employees), two-thirds of which aren’t yet using digital payroll software.
The ATO’s mammoth task
It’s a mammoth task, but the ATO is taking learnings from regulators in other countries, such as the UK and New Zealand, where the implementation of STP reporting was more immediate.
Shepherd said the ATO is adopting a “staggered approach” supported by deferral and exemption programs, admitting even the tax office itself is coming to terms with the new method of reporting.
This means the ATO is unlikely to turn on its full suite of automated analytical tools for determining non-compliance until next year.
“We’ve under-engineered our interactions for the first year, we’re still only doing very much manual looks,” Shepherd said.
“It’s very large volumes of data and we’re still understanding what payroll means. It’s very different for the government to get a file straight from your payroll rather than a BAS.”
Deferrals and exemptions
As the soft deadline for STP reporting approaches, the tax office is fleshing out what types of businesses it expects will apply for deferrals or exemptions:
- The “start reporting now group” — who are already using digital payroll;
- The “I need more time group” — who are willing and interested but need help; and
- The “quarterly reporting group” — with limited or no digital capability.
Businesses with fewer than 19 employees are technically required to be STP compliant by July 1, however, firms will have until September 30 to apply for quarterly reporting deferrals or exemptions.
The tax office won’t issue penalties for STP non-compliance until July 1, 2019, but will begin ramping up its messaging in the lead up to tax time next year as the availability of that protection winds down.
That means anyone looking to avoid a fine should either be reporting under STP or have an approved arrangement in effect by the start of next financial year.
Micro-employers approved for quarterly STP will have until June 30, 2021, to make the switch to pay-day reporting.
Micro-employers looking to apply for quarterly reporting must apply via their tax or BAS agents and meet certain criteria, including not having an outstanding tax payment plan with the ATO.
Those businesses will have until June 30, 2021, to switch over to pay-day reporting, and while exemptions are also being offered, they’re only for firms with limited or no access to the internet.
Closely held payees, including business owners who pay themselves intermittently, will not have to sign up for STP reporting for themselves until the 2019-20 financial year.
Meanwhile, non-business workers, such as nannies, will also be exempt for the first year, but after that, anyone who withholds pay for these types of roles will need to fork up for a digital payroll solution.
What about the cost?
There are over 100 STP compliant payroll solutions listed on the ATO’s website for those looking to make the switch.
While the large digital payroll firms have all announced $10/month products, there are also a number of free services, as well as others that can be accessed via mobile phone applications.
A full list of providers has been compiled on the ATO’s website and can be accessed here.
This story was updated at 1:25PM AEST 3 June to clarify the number of payroll solutions compiled by the ATO.