PAYE modernisation

The move to Real Time Reporting (RTR) under Revenue’s PAYE modernisation regime is fast approaching. The new regime goes live on 1 January 2019. From 1 January 2019, all employers will be required to accurately report employee remuneration and PAYE data on a REAL TIME basis, i.e. each time a payment is made or benefit provided to an employee, the PAYE due and remitted to Revenue must be 100% accurate.

Employers – Are you ready?

What to expect from 1 January 2019:

• employers will be required to notify Revenue on or before the payment of emoluments with details of the amount of the emoluments, the tax due and the date of payment for each employee;
• details of an employee’s start date must be reported before their first pay date;
• the employer will be required to submit a complete and accurate return by the 14th day of the following month detailing the tax deducted from each employee;
• payment of the tax due must be remitted to Revenue by the 23rd of that month (where the employer pays and files online via Revenue Online Service (ROS));
• Revenue will issue monthly statements summarising the total amount of income tax deducted in the month;
• P30s/P45s and P60s will cease to exist;
• the final payroll run in the year will generate a pre-populated statement detailing the total tax deductions for the year for the employee and the employer; and
• employers will need to regularise their internal processes to ensure that payroll is processed in REAL TIME, whether this function is handled internally or outsourced to a payroll provider.

Areas of concern for many employers

Benefits in Kind (BIKs) and expenses

The tax treatment of BIKs and expenses is a key concern for many employers. The rules governing the tax treatment of benefits and expenses can be complex and oftentimes the focus for employers is to review and rectify the payroll reporting after the end of the tax year in conjunction with the P35 filing.

This will not be possible with Real Time Reporting (RTR) and hence an accurate and efficient process of compensation collection and reporting will be key to ensuring the correct tax treatment each time a payment is made or benefit provided to an employee or director.

Revenue have confirmed that the expectation is that the process of tracking and reporting of all benefits must be robust to ensure that all remuneration is taxed correctly on a REAL TIME basis. Based on initial feedback it would seem that there may be some scope for employers to complete quarterly true -ups/reconciliations as a transitional measure but further confirmation from Revenue is expected in the coming months in this regard.

For employers with complex benefit schemes in place, it is recommended that a review of the tracking and reporting of benefits is undertaken in advance of the introduction of RTR.

Globally mobile employees

Implementation of the new regime will be challenging for employers with foreign employees working in Ireland. In particular, the RTR of shadow payroll data. Revenue have indicated that employers will be required to report and pay shadow payroll taxes within four weeks following the pay period in which the duties are performed in Ireland. This may be difficult to achieve in many cases, for example where an employer needs to obtain compensation data from the home country. In addition, in some cases data will need to be collated from outsourced vendors, eg relocation providers.

It will be imperative for employers with foreign employees working in Ireland to ensure that robust on boarding and shadow payroll processes are in place. Conversely, it will be important for employers to ensure the correct tax treatment is applied to payments made and benefits provided to Irish employees working overseas. 

Revenue interventions

It is expected, that with the introduction of RTR, the level of Revenue’s oversight will increase resulting in the likelihood of faster and more regular compliance interventions by Revenue.

In addition, it has been indicated that the number of interventions prior to the introduction of the new regime will increase, in particular communications have issued to certain employers to gather information regarding new joiners/leavers to ensure that employers are ready at “go live” date.

Penalties

The increased focus and potential for Revenue to detect non-compliance early is a concern for most employers.

The legislation governing the new regime, provides that a failure by an employer to correctly operate PAYE on a payment or benefit to an employee, could result in the employer being liable for the payment of income tax on a grossed up basis with effect from 1 January 2018.

In addition, the existing €4,000 penalty for the non-operation of PAYE may be enforced more readily. Revenue are expected to release further information in the coming weeks to provide clarity on how they attend to operate this legislation from 1 January 2018 and beyond.

How can an employer prepare for RTR?

There is time before changes come into effect. However, the clock is ticking and there is a short window of opportunity for employers to ensure they are ready for the ‘go live’ date.

A review of the payroll process from the reporting and collation of compensation data to the tracking and payroll systems and the operation of the payroll, is recommended for all employers and could be vital to assist with the efficient transition to RTR. To gain comfort over the payroll data and how each compensation item is treated for payroll tax purposes will be fundamental.