The Minister for Finance, Mr. Michael Noonan TD, announced the launch of Revenue’s public consultation process regarding the modernisation of the Pay As You Earn (PAYE) system in his budget statement of 11 October 2016. PAYE modernisation will involve the most significant reform of the PAYE system since its introduction in 1960.
The new real time reporting regime will be operational for all employee payments being made from 1 January 2019. This will require employers, agents and payroll providers to review their current business processes and practices so that they meet the new requirements.
PAYE modernisation will:
improve the streamlining of current business processes
reduce the administrative burden currently experienced by employers to meet their PAYE reporting obligations.
The objective of PAYE modernisation is to deliver real time information so that Revenue, employers and employees will have the most accurate, up to date information relating to pay and tax deductions. This will ensure that the right tax deduction is made at the right time from the right employees and, employers pay over the correct tax deduction and contribution for every employee. This will improve the accuracy, ease of understanding and transparency of the PAYE system for all stakeholders.
SMART PAYE sets out the key design principles of the project. Working to these principles throughout the design stages ensures that the project meets its objective while also ensuring the benefits for all stakeholders are easily identifiable.
What are the benefits for an employer?
- Seamless integration into payroll.
- Minimize employer cost to comply.
- Abolition of P30s, P45s, P60s and end of year returns.
- Right tax paid on current due dates.
- Time savings.
What will it involve?
PAYE Modernisation will involve an “Employer Submission” to Revenue each time an employee is paid. The Employer Submission will contain information similar to that which currently appears on an employer’s P35 return.
Will it create additional work for payroll operators?
It is envisaged that the workload for employers using payroll software will not increase as the majority of payroll software products should be capable of communicating electronically with Revenue without the need to upload or download files as currently happens. P30s, P35s and P45s will be abolished with employers submitting this information to Revenue electronically in the Employer Submission.
As noted previously, the reporting obligations for smaller employers, especially those availing of the direct debit payment option will increase. Currently these employers may be making one submission to Revenue each year (i.e. an annual P35 return), however under PAYE Modernisation, these employers will have to make an Employer Submission for each pay period. Revenue aim to provide an online data capture mechanism to allow employers report payments where payroll software is not in use.
What approach will Revenue take regarding the application of penalties for non-compliance?
While Revenue will take a practical approach when it comes to the application of penalties on the introduction of PAYE Modernisation, non-compliant employers can expect Revenue intervention.
Getting ready for PAYE modernisation
Revenue has commenced its awareness campaign for PAYE Modernisation by releasing an information leaflet entitled “PAYE Modernisation – Are You Ready”. The leaflet outlines important steps for new and existing employers in advance of 1st January 2019.
In preparation for PAYE modernisation, these steps should be followed:
- Register as an employer (for new employers).
- Take reasonable steps to verify the PPSN provided by employees and where the employee does not hold a PPSN, they should contact the DSP to apply for one.
- Register all employees with Revenue.
- Issue a P45 when an employee ceases employment and submit it to Revenue.
- Ensure that they have received an up-to-date tax credit certificate for each employee.
- Ensure that they hold a complete PAYE, PRSI and USC record for each employee at the end of the tax year.