Come the 1st January 2019, Revenue is blasting into the 21st century with PAYE modernisation. This is all a part of their big movement towards going digital, and Revenue is calling it the biggest change since they introduced the PAYE system back in 1960. But what does it mean for you?
A more detailed, up-to-date payroll system
The situation at the moment is that if you run payroll for January, you get in contact with Revenue before the 23rd of February. At this point, you are notifying them of how much PAYE, PRSI and USC you’ve deducted from your employees as total figures, and then you make that payment.
The problem is that Revenue doesn’t have any idea at this stage who you paid money to or how much you deducted from each person. Rather they get this information at the end of the tax year. In fact, it would be February of the next year when you would be required to do a P35 which provides more detailed information. This delay in information often results in there being a catch-up needed in tax due to overpayments or underpayments.
As of 1st January 2019, the new PAYE system will mean that you’re essentially giving Revenue a lot more detail at the time of your payroll. You will be informing Revenue about who you are paying money to and how much tax you are deducting at the time you’re paying your employees. The result is that Revenue knows right on the button who is getting paid what and when.
How does PAYE modernisation impact business owners?
With more transparency comes consequences and there will be far less wriggle room in the new payroll system. How could this affect you? Take for example a client of ours who wanted to inflate their salary to €80,000 a year for six months so they would have the necessary payslips ready to apply for a mortgage. This meant that from March, April, May, June, July and August they were taking the inflated salary, but then they reversed it for October, November and December so that the overall salary for the year was still €40,000. This would not work in the new system because each month your salary and tax would be registered against you.
This will also impact Directors who like to take their salary in one lump sum at the end of the year, rather than every month. Despite taxes being correctly deducted, Revenue will notice that there was no salary taken from January to November and then €200,000 taken in December, and as a result will charge an interest bill for the late payment of the tax.
How does PAYE modernisation impact bookkeepers?
Ultimately, the result is that Revenue has up-to-date, real-time information about every company’s payroll. Revenue has been working with all the major payroll software suppliers to ensure that they have adapted their systems to allow files be prepared that will upload directly into ROS (Revenue Online System). This work should be complete by now however it is prudent to do a trial run to make sure you have the updated software and that it does actually create the file in the correct format.
If you do not have payroll software or if your payroll software doesn’t look like it will be updated, then there are 2 payroll software applications we would recommend as we use them a lot. The first is SimplePay which is a cloud payroll application that is easy to use and costs about €8 per month for 5 employees. For larger or more complex payrolls we recommend BrightPay which is a server or desktop-based system which costs from €149 per year to use for unlimited numbers of employees. We have tested that both of these systems are ready for PAYE modernisation.
When you are conducting your payroll on the 28th of the month, you will be able to simply upload your returns, and the Revenue will follow up by sending out a statement on the 5th of the following month with a summary of what you’ve sent them. Whoever is in charge of payroll, will reconcile that and then they have until the 14th to provide any corrections to the Revenue.
With this tight timeframe, you may be wondering what happens if your bookkeeper is away on holidays? In this scenario, the bookkeeper is required to submit an estimate to the Revenue which will be corrected after. It seems that there is no stone left unturned in the new PAYE system!
For now, payment dates will stay the same, so you are still able to wait until the 23rd of the month or, if you’re on quarterly returns, you can still wait until the end of the quarter. However, important to note is that with the new legislation you must make the return submission to the Revenue before you pay employees, not after.
No more P35, P60s, P45s or P46s
A clear benefit is that there will now be less paperwork because there will be no need for P35, P60s, P45s or P46s! This is because everything will now be done in real-time, making these kinds of documents redundant.
No more P2C Cert
To know what tax credits and allowances employees are eligible for you would usually look to the P2C Cert on ROS. Now this will be replaced by the Revenue Payroll Notification (RPN). You can find this on the Revenue website.
How does PAYE modernisation affect employees?
It is not only the Revenue who get to keep up-to-date! The good thing for employees is that they now have access to real-time information too. These days, many employees work zero-hour contracts, resulting in them having two or three jobs which can complicate tax deductions. At the moment, employees can only see their tax information the following year, but in 2019 they will have access to real-time information, and this will put them in a better position to maximise the use of their entitlements across however many jobs that they have.
Employees can access this information by signing into the Revenue’s online services via the “My Account” portal (used to be called “PAYE Anytime”). Here they can find information regarding their tax credits, tax allowances, how much they have been paid year-to-date, etc.
New Employment Identifier number
Employees will now also have access to an Employment Identifier number. This means along with their PPS number for tax, employees now have a number for their job. This means that if someone has multiple jobs then they will have an Employment Identifier number for each one.
What are your opinions on the new PAYE system? Overall we think it is progress in the right direction, however, what is being introduced as “recommendations” on the 1st of January we believe will eventually be included in the legislation too. Once the new system is implemented and adopted, we wouldn’t be surprised if submission dates are brought forward, quarterly payments stopped and if companies with five or more employees are obliged to use a payroll system instead of inputting manually. Time will tell!