When PAYE Modernisation was first announced by the Minister for Finance in the October 2016 Budget Statement, it seemed a long way off. But now that it is about to come into operation, every employer, agent and payroll provider needs to check that they are ready for the new system and understand its implications.
PAYE Modernisation represents a move to Real Time Reporting. From 1 January 2019, all employers will be required to accurately report employee remuneration and PAYE data on a real time basis. Employers must notify Revenue at the same time as, or in advance of, any payment to employees.
Some employers will need to change current payroll practices to comply with the new system. In particular, practices around estimation, shadow payrolls and end of year corrections will need to change.
Employers will need to review payroll procedures so that accurate information is provided to Revenue on a timely basis. This is more difficult then it may seem, particularly regarding BIK details, share-based compensation and employee expenses. Employers should:
− Ensure their data is complete, accurate and up to date
− Engage with payroll software or payroll service provider
− Have a current tax credit certificate for each employee
− Issue a P45 to anyone who no longer works for them
− Check that they have allocated an Employment ID to each employee
− Know each employee’s date of birth
− Advise employees of the payroll changes
− Encourage employees to register for and use Revenue’s myAccount service and review – and if necessary – update their tax credits.
If employers make mistakes or do not comply with the new rules, a €4,000 fixed penalty can be imposed. Where PAYE is not withheld correctly, Revenue will recoup the tax on a grossed up basis.
Under real time reporting, Revenue will be able to monitor each employers’ adherence to the rules. Where there are significant and or recurring errors in the information provided to Revenue, this is most likely to lead to Revenue interventions and penalties.
It’s not just employers who need to prepare. Agents assisting clients with PAYE Modernisation will need to:
− Review their current terms of engagement
− Prepare for an increased workload
− Clarify exactly what their role will be (eg. are they processing the PAYE returns or advising on same?)
− Review fee quotes
− Consider GDPR implications
− Ensure clients supply accurate information in a timely manner to enable the filing of returns.
This is the biggest change to the PAYE system in 60 years and hiccups are likely to arise. There were lots of problems in the UK when it introduced a similar system in 2014; hopefully Ireland can learn from that experience.
Revenue have indicated that they will support those who do their best to be compliant. However, the penalty regime is too harsh and need to be revised. In the UK the penalty for errors is £100, compared with €4,000 here. If there are a number of errors (no matter how small) a penalty of €4,000 per error can be applied.
Employers need to ensure that payroll information is accurate (including BIK, expenses etc.) and produced on a timely basis to enable compliance with PAYE real time returns. They should also prepare for closer monitoring of PAYE data by the Revenue, which is likely to lead to more Revenue interventions.
We are happy to help. Please post your comment below or contact Gerry Higgins, Tax Partner on 01 677 9000 or by email: firstname.lastname@example.org.