Pay As You Earn (“PAYE”) Modernisation
Update November 2018
Are you ready for PAYE Modernisation?
The “real-time” reporting regime for PAYE will go live on 1 January 2019.
At this point, employers will have received a number of letters from Revenue highlighting the new regime. You will have received a request to submit a list of your employees to Revenue, the deadline for which was 31 October. You may also have received a Customer Service visit from a local Revenue officer. Revenue have undertaken a national campaign, holding over 100 seminars around the country and running media advertisements. In summary, your payroll reporting obligations are changing.
What is PAYE Modernisation?
PAYE Modernisation is a real-time payroll reporting system.
From 1 January 2019, you must make a submission to Revenue on or before making a payment to an employee.
After the end of each calendar month, Revenue will issue a statement based on submissions received, which sets out the tax due for the period. The statement is deemed a statutory return by the 14th day after month end.
Where errors are made, there is scope to amend the statement in advance of the 14th day of the following month. Payroll taxes are then remitted to Revenue by the 23rd day of the following month.
The P35 filing will also no longer be required – the reporting process must be correct for each pay period, otherwise penalties may apply.
What about benefits-in-kind and notional payments?
Revenue have advised that benefits-in-kind (“BIK”) and other notional payments should be reported by:
a) The day the BIK or notional payment is made; or
b) The earlier of the next pay day or 31 December in the year.
This applies to items such as medical insurance premiums, taxable professional subscriptions paid directly to the relevant body, share based remuneration, etc.
A “best estimate” of the taxable value should be included in the next payroll submission after the benefit/notional payment is provided. When the actual value becomes known, an adjustment is to be processed in the following payroll submission. Revenue expect these items to be reviewed regularly and at least quarterly with adjustments processed in the next payroll submission.
It is important to consider items that are provided in December. Employers tend to pay salaries early in advance of the Christmas break. Where items are provided to employees after the cash payment date, a separate payroll submission is required on or before 31 December.
Does this also apply to taxable expenses?
Revenue have advised that a payroll submission is required on or before any taxable cash payment is made to employees.
Many employers reimburse employees for items that, while allowable under the company expense policy, are taxable. To date, these items are generally picked up through retrospective reviews throughout the year and before the P35 is filed. This type of catch up exercise will no longer be possible.
Employers should review internal processes to ensure taxable expenses can be identified in advance of reimbursing employees.
Further complexities may arise where expenses are reimbursed by the Accounts Payable department or off-payroll-cycle as additional payroll submissions may be required.
Revenue have confirmed that the use of company credit cards are considered notional payments with the benefit being provided at the date the credit card is used (and not when the credit card bill is settled). Such items should be included
in a payroll submission and report to Revenue by:
a) The day the benefit is provided; or
b) The earlier of the next pay day or 31 December in the year.
This may create practical difficulties for employers in determining what items are reportable each period as you may not have oversight of the taxable expenses incurred until a later date when the employee submits expense details.
What about expatriate payrolls?
Revenue have provided further clarity with regard to expatriate payrolls for employees of non-Irish companies working in Ireland. While not fully adopting a “modified payroll” system similar to that in the UK, Revenue are to relax the regime.
Payroll submissions for expatriate shadow payroll cases are to be aligned with the Irish employer’s payment dates. A “best estimate” of benefits, allowances and expenses are to be included in each payroll submission. These items should to be reviewed at least quarterly with adjustments processed in the next payroll submission. An indicator box will need to be ticked on ROS/payroll software to identify inbound expatriate employees to Revenue.
Many outbound expatriates continue to be paid by the Irish employer during an assignment and may also be retained in the Irish PRSI system. The PRSI contributions are generally collected and reported through payroll. In these cases, again Revenue have advised that a “best estimate” of benefits, allowances and expenses should be included in each payroll submission. These items should to be reviewed at least quarterly with adjustments processed in the next payroll submission. Where a PAYE exclusion order is held for an outbound expatriate, the payroll submission must include confirmation that the PAYE exclusion order has been used by the employer. Revenue have advised that there will not be a specific indicator on ROS/payroll software for such outbound employees.
What is the impact of non-compliance?
The current penalty regime provides for a €4,000 fixed penalty for each breach of the PAYE regulation. There is also provision for a €3,000 fixed penalty imposed on the company secretary for each breach. These penalties can be imposed on a per-item basis, so if you are even a mid-size level employer, these penalties can mount up.
The equivalent penalty regime operated by HMRC in the UK for breaching the Real Time Information (“RTI”) rules for payroll is £100 per infringement.
Revenue have stated that the penalty regime is under review. The self-correction facility is also being reviewed to take account of PAYE Modernisation.
While we would hope that penalties would only be enforced for significant breaches and only in situations displaying evidence of deliberate behaviour, as things stand, they could be applied to any correction of or omission from a payroll submission.
How can you prepare?
The main issue for employers in preparation for PAYE modernisation is to review payroll procedures to ensure that accurate information is provided on a timely basis. While this might be relatively straightforward for certain payroll items, there are a number of more complex items. It is extremely important that any such issues are identified and addressed now ahead of go-live on 1 January 2019.
Employers need to review their overall payroll processes and procedures to ensure that the flow of data will allow them to report accurately on a real time basis. A change in mindset across organisations is required. It is very common for payroll teams to experience delays in obtaining accurate information on certain items (e.g. taxable expense payments, non-cash benefits in kind, etc.). Typically this affects more than the payroll team, as data comes through from a number of sources to the payroll team and it is important to have all stakeholders involved so they understand the need for refined or improved processes. Currently, in a payroll context, there is an emphasis on year end reporting. With PAYE Modernisation, the focus needs to be on real-time reporting of accurate data in each pay period.
While we welcome Revenue’s comments during seminars that “Revenue’s role in the early days of PAYE Modernisation will very much be one of supporting employers”, a lot of uncertainty still remains. We await clarity on the PAYE penalty regime that will apply going forward and guidance as to what we can expect from Revenue after this transition phase.
We are working with clients to help them prepare for this significant change through meetings, communications and tailored labs and will keep you informed as the project progresses. Revenue plan to publish an updated Employers’ PAYE Guide in December 2018 followed by updated Tax & Duty Manuals on this area after this date.
If you would like to discuss this matter in more detail please feel free to contact me or your usual Deloitte contact.