Accountants, Taxation & Business Advisors

PAYE Modernisation

2 November 2018

PAYE Modernisation – The Future is Here

Almost every employer will have heard of PAYE modernisation by now. It will bring significant changes to how employers operate their payroll and report to Revenue. The four key changes will be:

  1. Details of employees’ pay and deductions are to be reported to Revenue every time they are paid.
  2. A monthly statutory return will be required outlining who was paid and how much which removes the opportunity of using the P35 end of year process as a “safety next” to tidy up errors and omissions.
  3. There will be real-time visibility for Revenue of each employee’s pay and deductions, as well as corrections made by employers to those amounts.
  4. New PAYE Regulations to ensure employees pay “the correct tax at the correct time” – employers must use the latest Revenue Payroll Notification (RPN) – formerly the P2C.

1. Are you aware of the new reporting requirements?

All employers need to be aware of the reporting process that will apply from 1 January 2019. By the end of January, it will be clear to Revenue if an employer is not submitting reports from their payroll.

In addition to submitting reports on every pay date, employers also must review Revenue’s monthly statement, which summarises the payroll reports provided by the employer. This summary is regarded as a statutory return on the 14th of the following month. This means that any errors in the payroll during the month should be corrected before the 14th.

2. Have your prepared and submitted a "List of Employees"?

By now, all employers should have been notified, via ROS, of the requirement to upload their “List of Employees”, to reconcile Revenue and employer records. The deadline for submitting this list to Revenue is 31 October 2018.

It is critical that this list is correct and complete. If an employer does not have a 2018 P2C for an employee (or director), a RPN will not issue for 2019. If an employer does not receive a RPN for 2019 for an employee or a director before the first pay date in 2019, emergency tax provisions will apply. This will have a direct impact on an employee’s take-home pay. The simplest way to ensure all employees and directors are registered with Revenue is to upload the list of current employees.

In carrying out these preparatory steps, employers should consider whether:

  • They need to write to an employee who is now receiving a P45, to explain why the P45 is issuing. This may be relevant in cases where an employer intends to engage the employee again in future.
  • There are any employees who need to register their employment with Revenue, via Jobs and Pensions on MyAccount (as they started a job for the first time in Ireland). This should be completed without delay, to ensure that the list can be finalised on time.
  • They are using the up-to-date PPSN for their employees by checking recent P2Cs.

Once the list is submitted, it must be kept up to date, by following the P45/P46 procedures until the end of 2018.

When taking on any new staff, employers should use the ROS PPSN checker, to confirm the PPSN provided, matches the employee. If the number does not relate to the employee, the employer may need to contact the employee to ask for documentation, such as a Tax Credit Certificate or Public Service Card, to confirm the correct PPSN.

3. Do you have processes in place to capture all pay information and report it at the right time?

All forms of pay need to be captured and reported at the correct time. Some employers may not fully appreciate the broad scope of “emoluments” and may rely on their agent to correct mistakes or omissions, via the P35.

While corrections to payroll submissions will be possible, the end of year “tidy up” will no longer be available. In addition, repeated corrections will be more visible to Revenue and underpayments may give rise to interest charges (at 10% per annum).

Applying real-time reporting to Benefits-in-Kind (BIK) may be challenging. For example, BIK on cars is calculated on an annualised basis. However, the 2018 PAYE Regulations require BIK to be spread over the year and reported and taxed each pay period. Revenue has suggested that the BIK be reviewed, at a minimum, on a quarterly basis and adjusted where necessary.

Employers must ensure that employees provide them with mileage records in a timely manner, so that BIK can be returned through the payroll. This will also be the case for any other taxable expense payments.

At present, employees may be completely unaware of the new regime and its implications. However, it is expected that Revenue will undertake a communication campaign for employees in late 2018/ early 2019.

4. Do you know the importance of applying the RPN?

One of the key takeaway messages from the Revenue seminars is the importance of following the instructions on the RPN and using the most up-to-date version. Commercial software should automatically update to reflect an amended RPN each time the payroll is run. RPNs will also be accessible via ROS.

If employers do not follow the RPN instructions, they risk incurring a penalty of €4,000, per breach. If an employee or employer believes a RPN is incorrect, the employee needs to contact Revenue to resolve the matter.

Revenue is already focussing on the application of the P2C in their compliance visits to businesses. Errors, such as, not obtaining an up-to-date P2C, using an out-of-date P2C, not applying emergency tax, have been identified and have been penalised in some cases. In addition, Revenue has identified instances where employers are consistently using incorrect week’s credits and rate bands during the year and as result they will need to realign in advance of 1 January 2019.

5. Are you aware of the consequences of mistakes?

PAYE errors can be costly. Finance Act 2017 introduced a statutory basis for recouping tax, on a grossed-up basis, where PAYE is not operated by an employer. This provision came into effect from 1 January 2018.

Revenue clarified that it applies in two circumstances:

  • Where an employer completely fails to operate PAYE in respect of an employee.
  • Where there is active concealment of the payment or nature of the payment in the employer’s records.

In addition, penalties for procedural breaches of the PAYE Regulations are now contained in primary legislation. A penalty of €4,000 can apply, per breach, if for example, a RPN is not followed or an employee is not ceased, where required. Similarly, the legislation provides for a penalty of €4,000 if an employer does not hold a Register of Employees at their business address.

The tax advisors community have emphasised to Revenue the importance of adopting a “soft landing” approach for businesses that are taking on the huge challenges and any additional costs of transitioning to a new regime.

6. What are the software options?

Work is well-advanced on upgrading commercial software for the new reporting regime. Many providers are testing their software on Revenue’s Public Interface Test (PIT) site to ensure it is compatible with Revenue’s system.

Two methods of reporting are under development:

  1. Direct reporting - where payroll software will seamlessly report to ROS.
  2. ROS upload - where a software file can be uploaded via ROS.

Employers should engage with their payroll software providers to discuss their options and related costs, if they have not already done so. Some other matters to discuss with the software provider include;

  • whether the software has been tested on Revenue’s PIT,
  • when it will be available, and
  • what supports will be available, considering many agents and employers may be using the software for the first time next January.

7. What are the options for employers if they do not use software?

Small employers who do not use payroll software or outsource their payroll should consider their options now.

ROS will contain data entry screens to enable smaller employers without software, to report pay and statutory deductions. Revenue is demonstrating these screens at their countrywide seminars.

However, it is important to note that this is solely a reporting facility. It will not calculate the tax, USC and PRSI due. Therefore, any employer using this facility must be confident that they can compute these calculations correctly.

Even if an employer operates a static payroll (i.e. the pay is the same each pay date), should any detail change, for example, a new RPN issues, the tax will have to be recalculated.

Revenue will review the payroll reports submitted, via the data entry screens, to identify any anomalies.

Employers who are not e-enabled and excluded from the mandatory efiling/epayment requirements will be able to avail of paper-based reporting. Revenue will be communicating separately with this cohort of employers to provide them with the requisite forms and information.

Alternately employers may wish to outsource their payroll to ensure that they are fully compliant.

8. What support will Revenue provide?

Revenue has clarified that, as with the introduction of any new system or process, Revenue fully understands that it will take time for employers, tax agents and payroll operators to get used to the new arrangements that arise from the introduction of PAYE modernisation. Revenue expects that employers and their agents will familiarise themselves with their new obligations, will make their best efforts to operate the system properly from the go-live date and will submit accurate information in respect of all of their employees.

Revenue’s role in the early days of PAYE modernisation will very much be one of supporting employers and other stakeholders to operate the new arrangements. The Revenue website is being updated with the details of the new reporting regime and new and amended Tax and Duty Manuals will be issued in advance of 1 January 2019. Revenue’s National Employer Helpdesk has been scaled to handle these support requirements and can be contacted on 01-7383638.

9. Working with a Payroll Provider?

We are pleased to offer assistance to ours client with the new PAYE real-time reporting regime.

If you would like assistance with managing your payroll, payroll consultancy, or international payroll then contact one of our team today for a quote on 01 291 5265.

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