Farming finance: PAYE overhaul will be a taxing matter for some farmers
The new PAYE system will move all tax transactions online from January 2019
Those farmers who are lucky enough to have an employee or lucky enough in the future to be able to find one are facing a further challenge coming down the tracks.
From January next year, the PAYE system will undergo a major reform.
Revenue are describing it as PAYE modernisation which will involve the most significant reform of the system since its introduction in 1960.
Employers will need to calculate and report their employees' pay and deductions online as they are being paid which will end the more flexible practices engaged in by many employers currently.
Revenue say that it will make it easier for employers and employees to ensure that the correct tax is deducted and paid at the right time.
Revenue also say that the new system will improve the streamlining of current business processes and will reduce the administrative burden currently experienced by employers to meet their PAYE reporting obligations.
Farmers will undoubtedly say that they have heard all of this before, particularly from the Department of Agriculture with continuous streamlining of various processes in regard to compliance and cross compliance schemes.
In the main, such streamlining has not always reduced the administrative burden but rather has resulted in more red tape and record keeping and generally more cost.
The new system will require 'real time' reporting (as it happens) for all employee payments being made from 1 January 2019.
This will require employers or their accountants/agents to review their current business processes and practices so that they meet the new requirements.
The old Tax Deduction Card will disappear and will be replaced by the Revenue Payroll Notification (RPN). The P45, P60 and P35 will also disappear.
PAYE Modernisation will change how employers report their payroll information to Revenue. Every time an employee is paid, be it monthly or weekly, a file will need to be submitted (electronically) to Revenue, consisting of all details of employee payments and deductions.
Real Time Reporting (RTR) will result in a reduction in the occurrence of year end over/underpayments of tax. As an employer, you will need to:
request a Revenue Payroll Notification (RPN) from Revenue before making a payment to an employee. The RPN will provide the employer with the necessary information to deduct from the employee the correct tax, USC and Local Property Tax (if applicable). You must request an RPN from Revenue through ROS each time you make a payment to an employee. The RPN will be unique to the payment and employment
* report details of all employee payments in real-time to Revenue
* receive a monthly statement from Revenue
* file monthly returns
* be able to pay by variable direct debit.
From January 1 next year, the first time you request an RPN for a new employee, that request will also register the employment with Revenue.
If a new employee is not registered with Revenue they will need to do so by registering for myAccount which is a single access point for secure online services for individuals with Revenue.
Once they are registered, they will have to select 'Add Job or Pensions' in PAYE Services to register the employment. The employer will then be able to request an RPN for the employee.
Benefits for Employees
An online statement will be sent before the start of the new tax year which will detail the employee's tax credits and standard rate cut-off point (SRCOP).
This will be based on estimated income and details available to Revenue.
Employees will be encouraged to make any adjustments to this online statement, including any claims for additional entitlements
. This differs from the current system where an employee has to wait until the end of the tax year to apply for any refund of tax due. P60s will be abolished so employees will instead have access to their pay and tax record online which will at all times be up to date due to the real-time nature of the system.
Revenue will issue a monthly statement to the employer with the total amount deducted or repaid of Income tax. USC, PRSI and LPT (if relevant). If the details are wrong, you will have to correct the statement and submit the corrections to Revenue before the return due date. The statement will automatically become the return for the period.
Returns and payments
Returns must be made on a monthly basis but payment can continue as currently, be they monthly or quarterly. The return and payment due dates are 14 days after the end of the month or quarter as the case may be. There will be a provision for variable monthly payments by direct debit and the Collector-General will have the power to vary the payment date.
My reading of the PAYE modernisation prospectus has not instilled me with confidence that the administration burden will be any lighter for farmers with one or two employees.
On the contrary, it is a totally online based system and unless farmers are 'IT or tech savvy' I cannot see them being in a position to operate this new system. The net result will be added costs in having to pay the accountant to perform the task.
That said, Revenue have made a very good job of modernising the income tax system and we have to accept that, like it or not, online filing and administration is fast becoming the norm.
For example, the 2018 Basic Payment application can only be filed on line. Like most changes in life, things never prove to be as complicated as they appear at the outset and hopefully this will be the case with the new PAYE system.
Martin O'Sullivan is the author of the ACA Farmers Handbook. He is a partner in O'Sullivan Malone and Company, accountants and registered auditors: www.som.ie
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