PAYE Reporting proposals finalised

Tax Alert - November 2016

On 3 November 2016, the Government announced the finalised details of how the administration of PAYE is to be modernised as it looks towards a digital future as part of the Business Transformation Project.  Inland Revenue’s systems and processes are being redeveloped to take advantage of modern digital technology and the expectation is that most taxpayers will follow suit over the next few years. Broadly, employers and payroll intermediaries will file PAYE information directly from their payroll system.

With effect from 1 April 2019, all employers above the electronic filing threshold, all payroll intermediaries and employers using payroll software will file PAYE information on a “payday basis”.  The payday basis will be the second working day after payday.  The electronic filing threshold is to be reduced from $100,000 of PAYE and ESCT to $50,000 PAYE and ESCT.  However those employers who are above this threshold, but who cannot access digital services (e.g. because of poor internet service) can apply for an exemption from filing their PAYE information electronically.

The due dates for the actual payment of PAYE over to Inland Revenue will not change (i.e. large employers pay twice per month by the 5th and 20th, with small employers paying by the 20th), but employers will have the additional option to pay over the deductions on payday.

Employers will be able to file directly from payroll software or continue to use the Inland Revenue’s Secure IR online service which is to be upgraded.  As noted above, the rules must be applied from 1 April 2018; however employers could choose to apply these rules early from 1 April 2018.

The payroll subsidy that is paid for using a listed PAYE intermediary will cease from 1 April 2018 as part of these changes.

Employers who fall under the electronic threshold can still file a paper version of the PAYE information, although the due date for filing this information will be seven working days after payday.  These employers will need to ensure that information is posted to arrive within this time.  This could be a risk given the reduced postal services these days.

Inland Revenue is encouraged by the positive feedback from the recent trial of filing of GST returns directly through accounting software where participants reported it was easier, quicker and cheaper to comply.  However Inland Revenue makes it clear that it will not be providing free payroll software nor will it be subsidising the cost of purchasing payroll software. Inland Revenue will significantly improve its e-services which will be similar to online banking to encourage as many people as possible to file this information electronically.

Some fear that with an automatic transmission of information to Inland Revenue via payroll software that information might be accidentally transmitted before it is finalised or approved, or it might contain errors.  However Inland Revenue counter this objection by stating that the operator  will know when they have logged onto Inland Revenue’s system and when information is being transmitted to Inland Revenue.

Inland Revenue has heard concerns from taxpayers that more frequent filing of information could lead to an increase in errors. Inland Revenue has stated they will be undertaking furhter consultation in this area and will be considering the circumstances in which employers may correct errors in a subsequent return.

As part of preparing for these changes, the Government is proposing to make some changes to facilitate the calculation of PAYE, deductions and contributions with effect from 1 April 2018. Among the changes will be an option to treat holiday pay paid in advance as a lump sum as if it was paid over the pay period to which it relates, rather than as an extra pay.

The proposed changes to improve PAYE administration are to be included in a tax bill to be introduced into Parliament in 2017.

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