Employers must take action to comply with PAYE modernisation reforms
Thursday, 10th May, 2018
In this article, we discuss the key changes to the PAYE system as outlined in Revenue’s PAYE Modernisation Project, as well as other legislative amendments that will come into force in support of these reforms.
We also explain how this is likely to affect your payroll systems and processes, as well as offering practical advice on what action employers need to take to ensure compliance.
If you are an employer, you will be affected by these reforms to the PAYE system. Therefore, if you have any questions or require support on any of the matters raised in this article, please contact a member of the DBASS team on 01 848 8800.
What is PAYE Modernisation?
The PAYE Modernisation Project will involve the most significant reform of the country’s PAYE system since its introduction in 1960.
From 1 January 2019, employers will need to calculate and report their employees pay and payroll deductions as they are being paid instead of posting at year-end.
Revenue is putting an emphasis on ‘the right tax paid at the right time’. The changes will also mean the elimination of several forms and processes including P45’s, P46’s and P35’s.
Summary of key changes
The monthly statutory return will replace the form P30. This return will now be created at the same time the payroll is run.
The concept of a ‘PAYE tax year’ will disappear for employers; each pay period will have its own return, much like VAT.
The year-end report will be an aggregate of the monthly returns meaning no more P35’s.
Employees will have access to their PAYE information at the same time it is paid. They will also have access to a wider range of online services to enable them to manage their tax affairs.
Revenue will place itself much closer to the PAYE than it does at present. Rather than waiting over a year to receive a P35 return, Revenue will now have that information every month and therefore in a better position to monitor and intervene in cases as necessary.
Payroll software will need to be adapted for real-time reporting.
What does this mean for you and your business?
The PAYE return will be weekly or monthly depending on the frequency of your payroll.
The payment will be monthly or quarterly. This will remain unchanged based on the frequency of filing your companies P30’s.
Each time you pay your employees, you will need to do the following:
Request a Revenue Payroll Notification to calculate deductions correctly, similar to the current P2C download.
Submit the following payroll data to Revenue (weekly/monthly): Amount of Pay, Payment Date, Amount of Income Tax, PRSI and LPT (deductible or repayable)
Reconcile Revenue’s response with your payroll totals.
Each month you will need to:
Accept a statement from Revenue showing the total payroll deductions as your monthly return.
Pay the amounts due by the due date.
Other important legislative changes
In addition to these changes, there are also some other important legislative amendments that will come into force to support the PAYE Modernisation Project.
The changes you should be aware of are as follows:
Section 988A TCA 1997 – Maintain a Register of Employees
Requires employers to maintain a Register of Employees and to make such a register available to Revenue when requested. The information to be contained in the register for each employee is as follows:
The name and address of the employee;
The date of commencement of employment and, where relevant, the date of cessation of the employment.
While the maintenance of such a register has long been a requirement, it will assume greater importance following PAYE modernisation as Revenue will use the data contained in the register to compare against its own record of employees under that registration to ensure that the two correspond and that all employees are correctly recorded.
Section 112 (3) – (6) TCA 1997 – Change to a Payment Basis for Schedule E Income
Effective from 1 January 2018, most employees will be assessed to tax on the basis of the earnings received during the year, rather than the earnings arising.
No longer possible to ‘cast’ earnings back to have them assessed in the year they arose rather than in the year which they were paid.
Traditional provisions to avoid double taxation if earnings are taxable on a payments basis in 2018 and on an arising basis in 2017.
Although a significant change in the structure of Schedule E, most employees will not notice any difference.
Two exceptions - proprietary directors and employees on PAYE exclusion orders still assessed on arising basis.
Section 986A TCA 1997 – Payment Made Without Deduction of Tax
This Section provides that a person who is required to make any deduction in respect of PAYE shall be accountable for the amount of tax due, whether or not it has to be deducted.
The effect of this provision is to make the employer liable for any deductions which ought to have been made. This is in effect the statutory basis on which Revenue can seek to collect non-deducted PAYE from the employer rather than the employee.
A provision for “exceptional circumstances”
Where employers are unable to file returns due to systems failure in ROS, internet access and electricity supply.
In such circumstances, the employer will be required to operate PAYE by reference to the latest information provided by Revenue, or, if no notification has been received, to operate PAYE on the emergency basis.
The employer must provide the required monthly notification to Revenue immediately upon rectification of the technology systems failure.
What Happens Next? Revenue’s Engagement Program
Revenue will request to all employers to submit a Register of Employees (June 2018 onwards).
Employer visits by district staff (from May 2018 onwards).
Media and advertising campaign (June 2018 and September/December 2018).