PAYE modernisation is the most significant change to the PAYE reporting system since its introduction more than fifty years ago. Revenue will make real-time reporting of payroll mandatory from the 1st January 2019. This means that as an employer you will have to calculate and report your employee’s pay and deductions to Revenue at the same time you issue payroll.
Purpose of PAYE Modernisation
The purpose of PAYE modernisation is to make it easier to deduct the correct amount of Income tax, PRSI, USC and LPT and to ensure it is paid at the right time. However many employers are struggling to figure out what they need to do to get ready for the deadline. To help you get to grips with PAYE Modernisation, here’s some of the key changes you need to be aware of.
From 1st January 2019, the PAYE process will be simplified. Forms such as the P30, P45, P46, P35 and P60 will be eliminated. Employers will be required to provide information to Revenue on employees’ pay and statutory deductions each time they make a payment to employees. This will ensure that Revenue has the most up to date pay and deductions. This also means that employers will be able to view all the data reported to Revenue by their employer.
Tax Issues and Employee Entitlements
There are two sides to PAYE modernisation. Firstly there are the taxes – PAYE, USC, PRSI and LPT. Secondly there are the Employee Entitlements and Benefits. Some of these are taxable and other qualify for tax relief. For example, travel passes, cycle to work schemes, and pensions have tax relief available.
Whereas health insurance, loans, company cars and gym membership are examples of benefits that are subject to taxes.
Social welfare payments such as maternity, paternity, adoptive and health and safety benefits are treated differently again.
Key to PAYE Modernisation and Real Time Payroll Compliance – Key to Success
One of the keys to successful implementation of PAYE Modernisation and Real Time Payroll Compliance is making sure you can:
Differentiate between taxable and non-taxable entitlements
Enter them correctly
Record them accurately so that if Revenue query them you can
Provide necessary reports
Revenue’s Risk Analysis System
Differentiating between taxable and non-taxable entitlements and accurate calculation of entitlements is where so many employers experience problems. With the huge increase in reporting required, it increases the risk of being flagged by Revenue’s Risk Analysis system and this could increase the chances of an audit.
This is one of the main reasons why you might want to consider outsourcing your payroll to a payroll service provider.
Checklist for PAYE Modernisation and Payroll Compliance
Here’s a checklist of just some of the essential steps you’ll need to take:
Make sure you are registered as an employer
Ensure all employees registered with Revenue
Verify the PPSN of all your employees
Ensure each employee have access to their tax credit certificate
Make sure each tax credit certificate is up to date
Keep accurate PAYE, PRSI and USC records for employees for each tax year
Complete the P45 process correctly when an employee ceases employment