PAYE Modernisation and its Potential Impact on Payroll

Revenue plans to release an updated PAYE system in January 2019, close to 60 years after its original introduction in 1960. Having met the needs of the time, the PAYE system didn’t effectively evolve with society. For example, people now move jobs more regularly and changes in personal circumstances such as marital status is much more common. On top of this modern IT systems and prevalence present multiple opportunities for greater accuracy and real-time communication.

The objective

The objective of PAYE Modernisation is 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.

At its core, PAYE Modernisation means that, for each member of staff, employers will make the right tax deduction when the staff member is being paid, employees will have the certainty of knowing that they are not overpaying or underpaying tax and Revenue will, through real-time reporting by the employer, have the most up to date information possible to determine that each employee is subject to the tax deduction that is appropriate. It is anticipated that this reporting process by employers to Revenue will be fully integrated into the employer’s payroll run, thereby contributing to a significant streamlining of business processes and reducing administrative cost for employers.

Implications for Employer’s Payroll

Employers will report to Revenue, pay, tax and other deductions, as well as details of any employees leaving the employment, at the same time as they run their payroll. Details of employees starting employment will be reported before their first pay day. The final payroll run in the year will generate a pre-populated statement setting out the total tax deductions for the year both at the level of the employer and the employee.

Implications for Employees

Prior to the start of each year, an online statement setting out the tax credits and standard rate cut-off point for the upcoming year will be made available to each employee. This will be based on estimated income and information available to Revenue for the employee. Employees will be prompted to make any necessary adjustments to or to update this online statement, including claiming any additional entitlements. Based on this information, a tax credit certificate, reflecting the most up to date information possible, will then issue to the employer and employee and this will ensure tax deductions are correct when salary or wages are being paid during the year.

Revenue will carry out periodic reconciliations throughout the year of employees tax deductions, based on actual pay and tax details, to ensure that employees optimise the full benefit of their tax credits and rate bands across employments during the year. This contrasts with the current system where the employee must wait until the end of the year for such reconciliation and wait for any refund or be faced with a tax underpayment.

Ad-hoc reconciliations will be a feature of the new system based on any changes in circumstances arising during the year. An automatic end of year review will be carried out for all employees based on income on Revenue’s records from all employments, tax credits claimed and available third party data and will confirm the correctness of the tax paid for the year.

Here at PaycheckPlus we expect the Irish PAYE modernised system to be somewhat similar to, and hopefully an improvement on, the UK’s RTI (Real Time Information) system of reporting that most UK employers had access to 2013. So with this in mind, along with Revenue’s proposal, we’ve highlighted the following concerns and possible requirements that the modernised system could bring:

Payroll management concerns and potential business requirements

• The real-time reporting may result in increased administration levels which would increase in-house Payroll management costs for businesses
• More deadlines mean more pressure and greater burden on Payroll staff
• The unspecified amount of “periodic reconciliations” may have time and cost implications for businesses
• Reviewing and correcting data may be limited (re-uploading the correct data may be required rather than updating the already uploaded incorrect data)
• Training is likely to be required for Payroll staff
• Payroll staff must ensure that any software that they use facilitates the modernised system
• The current Payroll processes that businesses and staff use will need to be updated
• Additional data may be required to meet the new system requirements