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PAYE Modernisation: What's facing you and your business?

01 November, 2016

A PAYE reporting revolution is on the horizon in Ireland and businesses should not underestimate the challenge which this will present.

From an employment tax and payroll perspective in Ireland, the next two years in the run up to January 2019 is likely to be a lot busier than usual. And all because of one sentence contained in the Minister for Finance’s Budget 2017 speech:

‘The Revenue Commissioners are launching a consultation process… that is intended to lead to a fundamental redesign and modernisation of the PAYE system.’

As labour taxes now outstrip corporate taxes globally such taxes are increasingly viewed by Revenue authorities around the world as ‘easy pickings’, and this announcement in Ireland on Budget Day came as no surprise.

The public consultation was launched on Budget Day, 11 October 2016, and will run until 12 December 2016. The proposed reform of the PAYE system is due to take effect on 1 January 2019.

Between now and then, employers, employees, payroll providers, payroll software providers and tax advisers will work with Revenue to design and put in place new procedures to modernise the Irish PAYE system, which is more than 50 years old.

Modernisation means a reporting revolution

Billed as ‘PAYE modernisation’, Revenue is moving towards Real-time Reporting (RTR) for employers. This is a significant development. It follows the path taken by the UK, where RTR has been in place since April 2013.

RTR has been in place in Ireland for Relevant Contracts Tax (RCT) since 1 January 2012. This electronic reporting system, which captures all interactions between principal contractors and Revenue, has been strictly enforced since its introduction. When compared to PAYE, RCT reporting would generally be considered to be more straightforward. For employers, PAYE RTR will mean having to report pay, tax and other deductions, as well as any employees leaving their employment, at the same time as they run their payroll function. In a nutshell, the reporting obligation of all employers will need to be integrated into their individual payroll runs. No more P30s, P35s, P45s or P60s.

According to Revenue, the anticipated benefits for stakeholders include:  

  • streamlined business processes, reducing the administrative burden on employers; and
  • up to date information for employees on the calculation of their tax deductions.

For Revenue, through the ability to conduct more accurate tax compliance risk analysis, RTR will put pressure on companies’ resources and budgets. Organisations need to be mindful of the pitfalls that can arise as well as the employment tax and payroll risks that can occur.

RTR will give Revenue real-time oversight of a company’s payroll operation. This will increase the focus on employment tax compliance in each pay period. The quality of information and the timeliness of data reporting will be key.

Employers may need to conduct a full review of their reporting and tracking systems before 2019. There may be a need to design new policies and procedures to capture information which was not required before. Payroll software will need to be reviewed to ensure that it is capable of complying with the new obligations.

Employers may also face increased expectations from employees in relation to the processing and reporting to Revenue of their pay and tax details, supporting their claim for tax credits on a real-time basis.

What about the broader tax risk considerations?

What happens, for example, if a company’s benefit programme is not completely tax compliant? Under RTR, Revenue will have access to real-time information on it.

RTR will also give Revenue the ability to identify potential weaknesses arising from payroll adjustments. This may increase the likelihood of selection as part of Revenue’s compliance programme.

It seems inevitable that there will be greater employer day to day interaction with Revenue as a result of RTR. The extent to which a company responds to the new obligations will impact their relationship with Revenue going forward.

Who should be involved in planning to implement the changes?

In the increasingly complex environment which will prevail, an orchestrated approach across the business reduces the risk of non-compliance and the resulting reputational damage of getting it wrong. Depending on the scale of the organisation, multiple stakeholders - including Payroll, Systems, HR, Tax and Finance – and potentially external vendors and advisers may have a part to play in planning to minimise risk and ensure that compliance processes are adequately geared to handle the complexities.

Be part of the public consultation process

We will be participating in the public consultation process with the Revenue Commissioners. If you would like to contribute to the debate, feel free to contact Doone O’Doherty who is co-ordinating our response.

Alternatively, if you have any questions or would like to learn more about how this development might impact you or your organisation, please talk to your usual PwC contact or get in touch with Carmel O’Connor.

Written by Doone O’Doherty and Jessica Webbley-O’Gorman, PwC Ireland
This article was first published on Tuesday, 1 November 2016

Contact us

Doone O'Doherty

Partner, PwC Ireland (Republic of)

Tel: +353 87 276 8112

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