Wednesday 12 December 2018

All change in PAYE right now

Revenue shake-up in the coming months means the onus is now on employers to get details correct before paying staff

Stock photo.
Stock photo.

Tom Maguire

Can you believe it's May and Revenue are already writing to employers regarding next year's PAYE obligations? This is due to the PAYE system being modernised from next January. I don't think "modernised" does this stuff justice; rather it's more like a seismic shift in everything you knew about filing payroll details with Revenue.

January won't be long coming; maybe it's just me but it doesn't seem that long since we were opening selection boxes and watching It's a Wonderful Life and now the year is almost half over.

Tom Maguire, tax partner at Deloitte. Photo: Damien Eagers
Tom Maguire, tax partner at Deloitte. Photo: Damien Eagers

Revenue's recent annual report says that this modernisation project "will transform the administration and collection of payroll taxes" and will "…bring improved accuracy and transparency for Revenue, employers and employees. It also will reduce the administrative burden on employers and will ensure that employee tax deductions and contributions are correct and are reported to Revenue on time."

I was chatting with my partners Daryl Hanberry and Billy Burke, who are advising their clients in preparation for this seismic shift. They say that right now, although PAYE is paid throughout the year, it's only at the year-end reporting stage that employee details become available to Revenue on filing the P35.

We all know the radio ads around January time with their dramatic soundtrack regarding that deadline. Revenue know that some employers play catch-up around year-end to adjust payroll for various items and under the new system it will still be possible to make adjustments to filed details. However, under the new rules, Revenue will immediately see such tweaks and employers who keep playing catch up will probably be contacted by Revenue and maybe not in a good way. It's all not too far off Tom Cruise's Minority Report for payroll.

Under the new system, the focus needs to be on reporting accurate data in a real-time basis each pay period. So the new PAYE regime can be described as 'right here right now' regarding employee information. Gone will be the 'P days' in that various returns and documents such as P30, P35, P60 and P45 will all be distant memories. Employers need to be ready.

Right now, the employer receives tax credit and standard rate cut-off details for each employee to calculate PAYE when remunerating that employee either on a paper tax deduction card or electronically via Revenue's online system through a P2C report. Those items will be replaced by a Revenue Payroll Notification (RPN). The employer will have to request an RPN from Revenue before remunerating an employee. The RPN will provide the employer with the necessary information to deduct the correct PAYE/PRSI, Universal Social Charge and Local Property Tax (if applicable) from the employee. This is not too dissimilar from what happens currently.

However, what will be different is that on or before making a payment, the employer must provide Revenue with details for each employee of the amount of pay, the payment date and the amount of tax deductible or repayable.

Revenue will issue a monthly statement to the employer with the total amount of tax due etc. If the details are wrong, the employer can reject the statement and submit the corrections to Revenue before the payment due date. The date on which tax is due remains unchanged.

Today many payrolls are operated using computer software and it is understood that such software is being amended to interact with Revenue's online system.

However, there still are some manual paper-based payrolls being operated. For employers who do not use computer software, then the employer can use the Revenue Online Service (ROS). The ROS system is being upgraded to allow for the recording of employee payroll information for sending to Revenue in accordance with the new requirements.

The cynic would say sure the tax hasn't changed and it's all very simple really given gross wages in, tax and net wages out.

But as we all know life isn't that simple. Daryl and Billy point out that although real-time reporting might be relatively straightforward for certain payroll items, it is very common for payroll teams to experience delays in obtaining accurate information on other items (eg taxable expense payments, non-cash benefits in kind, equity compensation, expatriate items, low-rent accommodation unless you live in a lighthouse where you need to be there for your job etc.) They would argue that early preparation is critical to a smooth transition (fail to prepare, prepare to fail and all that) to this brave new world. It's a new dawn, it's a new day, it's a new life for employers and they're feeling... how? Prepared?

Therefore, it's important that employers consider this matter right here right now to minimise any hair-pulling moments closer to the time and yes I'm aware of the irony of that advice given my photo. January and February 2019 are likely to be busy for payroll teams between finalising the 2018 P35 and grappling with this new system as it gets off the ground so the more work done in advance of that time the better.

One of the most common lines in the movies is "there's a storm coming" and saying that you didn't know is a dog that just won't hunt. Revenue will continue with its information campaign to ensure taxpayers are up to speed on this PAYE modernisation through workshops and briefing sessions including letters in letterboxes. Change is coming; are employers ready? The storm is coming and it'll be selection box time again really quickly.

Tom Maguire is a tax partner in Deloitte and author of Irish Income Tax 2018

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