In his Budget statement of 11 October 2016, the Minister for Finance announced the launch of Revenue’s PAYE Modernisation project. The legislative provisions were set out in the Budget statement of October 2017 and published in the Finance Bill 2017.

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 that employers pay over the correct tax deductions and contributions for every employee. This will improve the accuracy, ease of understanding and transparency of the PAYE system for all stakeholders.

A public consultation process was launched in October 2016 inviting submissions regarding the modernisation of the Pay As You Earn (PAYE) system. By the closing date of 12 December 2016, 77 responses were received from tax practitioners, employers, individuals, representative bodies, payroll agents and payroll software developers.

The Report on the Public Consultation Process was published on 3 April 2017 and is available to view on www.revenue.ie/pmod176.

At its core, PAYE Modernisation means that, for each employee, employers will make the right tax deduction when the staff member is being paid, employees will have the certainty of knowing that they are neither overpaying nor 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 appropriate tax deduction. 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 a reduction in administrative burden and costs.

Revenue has engaged in an extensive co-design approach to PAYE modernisation, and has taken input from external stakeholders, to ensure that reporting will be seamlessly integrated into the payroll process. A number of the points raised in the consultation submissions are currently being worked through with the project team to assist in and inform the overall system design.

Timeline

All payments made to employees from 1 January 2019 must be reported to Revenue through the new real time reporting regime. While Revenue recognises that this ‘go live’ date is ambitious, it is achievable. A detailed plan of activities to reach this timeline has been created and all significant deadlines and milestones have been met, to date.

In recognition of the timeframe required by software developers to build and test their software, Revenue committed to publishing the employer submission and Revenue Payroll Notification (RPN) data requirements and business rules by the end of June 2017. The data was published on 30th June, as agreed, and is available to view on www.revenue.ie/pmod178.

To facilitate a nine month testing window, from the end of March 2018, Revenue will provide a Public Interface Test (PIT) environment for software providers and employers. This test environment will be scaled to handle volumes reflective of a live environment.

Revenue fully recognises that this project presents not merely a software challenge, but will require a significant business process change for Revenue and employers alike. Readiness on both sides will be challenging within the timescales and progress will be monitored closely throughout the project.

Impact

For employers, the introduction of real time reporting will necessitate changes in their current salary payment practices, some of which are based on an end of year reporting obligation. They will need to focus on the quality and accuracy of the data they provide to Revenue on each pay day. Employees will have full visibility of the data reported to Revenue in real time which will increase transparency and facilitate the quick resolution of errors.

PAYE Modernisation will reduce the administrative burden by integrating PAYE reporting obligations into the normal payroll process, thereby, eliminating the need to file forms P30, P35, P45, P46 and P60.

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. New employees will be reported to Revenue through the payroll process also.

Each month, the employer will be issued a statement reflecting the sum of the deductions made on behalf of all employees in that month. This will become the employer return. If the employer disagrees with the statement, they must update the associated payroll records and an amended statement will issue. There will no longer be an end of year compliance requirement for employers; instead, there will be twelve returns based on the payroll data submitted each month, in line with current due dates.

Integrating and simplifying employer processes will provide increased confidence in the accuracy of the data, preventing costly and time-consuming errors and eliminating unnecessary contacts by employees with the employer, where they have suffered an incorrect tax deduction.

Consideration is also given to the needs of smaller employers who may not use payroll software and/or who may experience difficulty with internet/broadband connection. Revenue is committed to providing a workable solution for these employers.

For employees, PAYE Modernisation gives them the ability to quickly and easily manage their tax affairs by providing them with up to date information relevant to the calculation of their tax deductions and the option to make any necessary changes, in real time, through their online Revenue account (myAccount). It will also provide employees with transparency. Employees will be able to confirm, through myAccount, that tax deductions made by their employer have been reported to Revenue.

Automatic, periodic reconciliations and end of year reviews will ensure that the correct amount of tax is paid by each employee, including those with more than one employment.

Revenue will carry out periodic reconciliations of employees’ tax deductions, based on actual pay and tax details, to ensure that they get the full benefit of their tax credits and rate bands across employments, throughout the year. This is in contrast with the current system where a reconciliation is conducted at the end of the year and the employee must, potentially, wait for any refund or be faced with a tax underpayment. At the end of the year, Revenue will issue each employee with a statement outlining their pay and deductions.

Revenue understands that tax agents and outsourced payroll providers require access to their clients’ data, subject to approval by the client, in order to report the payroll and pay the required tax. Revenue already provides extensive access via Revenue’s Online Service (ROS). As part of the co-design workshops, Revenue is engaging with the agent and outsourced-payroll community to understand their particular requirements, and will endeavour to ensure these are incorporated from the start.

Challenges

The proposed move of PAYE reporting from the current yearly basis, to a real time basis, is a fundamental change, in both philosophy and practical application, for Revenue and employers.

Employers will need to focus on the quality and accuracy of the data they will provide to Revenue on each pay run.

Revenue will need to respond in real time to employer reporting and PAYE compliance issues. Revenue will also need to extend its ICT infrastructure to handle the scale and volume of data on a continuous basis.

Revenue also recognises that stakeholder engagement and communications are critical components of the PAYE Modernisation project. Revenue has engaged in extensive consultation with relevant stakeholders and will continue to do so throughout the project. These stakeholders are diverse and include; Chartered Accountants Ireland, payroll software developers, payroll agents, taxation and other accountancy bodies, small employer representative bodies, large employers and relevant Government departments.

A challenge for Revenue will be to engage those employers who are not affiliated with the main representative bodies or other umbrella organisations. Revenue will seek to spread its communications net as wide as possible to make sure all employers are aware of their changing obligations. Readiness for the new system will be assessed on an ongoing basis through Revenue’s established stakeholder network, as well as through the use of customer and business panels, conferences and national association events. Revenue also recognises the importance of providing adequate support structures for employers, payroll operators and payroll software developers to ensure the smooth introduction of PAYE Modernisation. Training of Revenue staff in the new processes, procedures and technical requirements will be vital in this regard, and Revenue is committed to ensuring that Revenue staff will have the requisite knowledge and expertise to support those affected.

Prepare for Change

The introduction of the new system will require employers, agents and payroll providers to review their current business processes and practices to ensure that they are in a position to comply with the new requirements.

PAYE Modernisation presents Revenue with the opportunity to rectify incorrect data and to put procedures in place to ensure the quality of data in the new system.

To facilitate this, Revenue has initiated a data cleansing and alignment process. This process will focus on common errors identified through our initial analysis, including:

• Employments not registered with Revenue and no P2C issued for the employee
• No PPSN provided for employees on the P35L
• Updated P2Cs not applied in the payroll process
• Illness benefit not taxed through the payroll.

As the name suggests, the main aim of the data alignment process is to ensure that Revenue’s customer data is aligned with data held by employees, employers and the Department of Employment Affairs & Social Protection.

As part of the Employer Readiness phase of the data alignment process, Revenue is contacting employers who do not appear to have informed Revenue of new employees.

In preparation for the change, all employers and their agents should ensure:

• They are registered with Revenue as an employer
• Their employees are registered with Revenue as their employees
• They have the correct PPS number for each employee
• They have a current Tax Credit Certificate for each employee
• They have issued a P45 for anyone who no longer works for them.

More information on employer obligations regarding the taxation of employees can be found on www.revenue.ie/pmod174.

It is acknowledged that readiness on both sides will be challenging. However, Revenue is confident in its ability to bring about this change within the agreed timeframe and is engaging extensively with all stakeholders.

PAYE Modernisation presents significant opportunities for employers, employees and Revenue alike.

Whether you are an employer, payroll provider, payroll software provider, tax practitioner or bookkeeper, it is important that you keep abreast of these changes and review your current practices.

Additional information and documentation can be found on the Revenue website, including summary findings from our stakeholder engagement to date, employer submission and data requirements, webservice examples and the Report on the Public Consultation.

Sinead Sweeney Office of the Revenue Commissioners, Assistant Principal/Change and communications manager for PAYE modernisation project.

Should you have any queries or feedback on the project, please contact Revenue at payemodernisation@revenue.ie.