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PAYE Modernisation FAQ

Getting clients ready, our experience

What are the key challenges we are seeing in practice at present?

The main challenges, apart from mobile employees, relate to taxation of non-cash remuneration (benefits) such as company cars, loans, medical insurance and share based remuneration. This is due to the valuation aspect and in relation to cars in particular it appears Revenue may issue some guidance/assistance regarding tracking business mileage etc.

Are there particular items of compensation which will create greater risks for employers under the new system?

Benefits and how they are valued will give rise to some risk areas. Greater controls over expenses for travel and subsistence will be required to avoid PAYE issues.

Will employers no longer be able to process year end salaries to directors/shareholders depending on year end results which was common practice for some employers?

Real time reporting will relate to payment of salaries so it should not change the timing of PAYE payment and reporting. Existing rules as to the timing of the payment to secure a tax deduction for the business may be impacted.

How do you see the operation of interest, penalties and Revenue interventions under the new system?

PAYE will still be due for payment by 23rd of the month following payment and interest will be charged on late payment. Revenue will be reluctant to allow any leniency on this however they will hopefully exercise discretion on application of any penalties in the early stages of the new regime in recognition of the part being played by employers in this fundamental change to the PAYE system.

What should employers be doing to get ready for the introduction of PAYE Modernisation?

All employers need to review their employee listings to ensure they are up to date and that they hold valid PPSNs for all current employees as well as tax credit certificates and that all necessary processing of P45s/P46s for leavers and joiners has been dealt with and continues to be dealt with on a timely basis for the remainder of the year.

You should also consider a review of your system of tracking and taxing BIKs as these must be taxed in a real time fashion under the new regime, from January 2019.

Impact on clients with globally mobile workforces

What are the key challenges faced by employers with globally mobile workforces under the new system?

Both Irish companies who have employees working abroad and foreign companies who have employees working in Ireland will face significant challenges in ensuring PAYE is operated in “real time” for globally mobile workforces. The following are the key issues:

  • in the first instance information on employee presence in different countries has to be readily available to HR, tax and payroll teams. We have seen many situations where these teams are only informed of employee movements months after the event;
  • once employee movements have been determined, employers need to determine if a PAYE obligation arises in the first instance which is not straight forward given recent changes in Revenue practice in the area; and
  • employers then need to ensure that PAYE is calculated correctly and captures all cash and benefits/expenses provided to individuals. This can be difficult for employers given the different tax rules that apply to different compensation items; the sourcing of such information can also take significant time.

All of this will impact on employers being in a position to ensure PAYE is operated in “real time”.

What about foreign nationals who do not have PPS numbers when they arrive in Ireland? Will employers be able to pay them via the PAYE system or will the new system reject submissions that do not include PPS numbers?

This has been a major concern for employers who engage foreign nationals given that  these individuals will not have PPS numbers when they start working in Ireland. Revenue have now clarified that the new system will allow payments to go through without PPS numbers for up to 3 months. Emergency tax will apply until PPS numbers and tax credit cert in place. Revenue have stated that where no PPS number is in place after 3 months then this will result in a “Revenue intervention”. We understand that this will involve communication from Revenue and employers will need to explain the situation.

What about shadow payrolls (that are operated by employers who have employees of foreign companies working in Ireland)? Will Revenue expect shadow payrolls to be operated in “real time” as payments are made to these individuals?

Under the new system, employers will have to indicate those employees who are on shadow payroll. For those employees that Revenue have received notification of, Revenue have stated that they expect PAYE will be calculated in the month payments are made to these individuals but are willing to provide employers with a period of 1 month to make corrections. However, it remains unclear as to whether interest and penalties could apply to shadow payrolls that are corrected outside of the 1 month period and we are awaiting further clarifications from Revenue on this.

What should employers with globally mobile workforces be doing to get ready for the introduction of PAYE Modernisation?

All employers with a globally mobile workforce should be conducting comprehensive reviews of this area to ensure that they are in a position to operate PAYE in “real time” from 1 January 2019. This should include the following:

  • determine categories of employees involved e.g. locations, time spent in different countries, roles of employees;
  • determine the company’s PAYE obligation for all categories of employees;
  • review internal processes and procedures for capturing employee movement and all compensation items provided to these individuals;
  • determine that the correct tax treatment is applied to payments made and benefits provided; and
  • finally, ensure that robust on-boarding and payroll processes are in place.

UK experience

What has been your experience in the UK after ‘Real Time Information’ (RTI) was introduced in April 2013?

One core reason for RTI was to deliver payroll information to the UK benefits system; it was not designed to be user friendly. HM Revenue & Customs (HMRC) derived efficiencies and benefits from the switch including immediate-accurate reporting alongside better cash flow of PAYE and NIC to the exchequer. RTI changed the market, rationalising software suppliers, providers and in-house solutions. The switch to a payday filing regime altered processing behaviours as the traditional “tidy-up” at year end was no longer an option. Few would want a return to the paper P35 regime, but some issues remain to be resolved.

Were there any teething problems with the new system?

Early on, HMRC helpdesks were overwhelmed leaving issues to be resolved between employers and software suppliers. Not all of those early ad-hoc solutions were robust but it allowed filing to continue. Clean employee data along with decent software and/or a trusted provider remains the bedrock for successful filing. HMRC’s free online filing tool has been  clunky and unattractive to use from day one.

Mid-year and cross tax-year adjustments can be challenging to resolve. HMRC’s on-line dashboard (balances and liabilities) has yet to be made available to agents 5 years on. HMRC can struggle to identify and correctly process key events such as a client changing software or provider.  

What approach did HMRC adopt to the operation of interest and penalties?

A softer approach to penalties was welcomed by all NI/UK employers. Given the teething problems incurred, the majority would have been appealed. The ability to advise HMRC why submissions are delayed/late when making the submission has helped. Penalties have not been a big feature of RTI for the majority of employers.

Interest is applied on late payments and surcharges are in place for persistent non-payment. It drives behavioural change; moving away from using HMRC to help manage cash flow.  HMRC’s approach has been appropriate and fair.

Have there been a significant increase in Revenue interventions as a result of the introduction of Real Time Information?

HMRC were largely silent during the initial phases of RTI. A focus on making it work led to less direct contact with employers.  Normal compliance activity went on as before. HMRC are beginning to mine the RTI data as can been seen here.  How and when this type of analysis is used to identify and monitor Employer compliance in the future will be interesting to note.