Having set an ambitious deadline for the implementation of RTR (it was first announced in October 2016), Revenue continues to dedicate significant resources to the preparation for RTR. Revenue’s preparation was bolstered by the allocation of €50 million in Budget 2018 “…for enhancing ICT capacity for data matching and analysis and capability building”.

Why is this important? Leaving the operational aspects of RTR aside (they were covered in the tax.point article in the November 2017 issue by Sinead Sweeney of Revenue), reporting PAYE in real time means that granular employee payroll data will be visible to Revenue every time employers run their payrolls. This will shine a spotlight on poor payroll processes which Revenue will have the data analytics capability to interrogate. Ultimately, this will result in increased Revenue attention, scrutiny and queries.

That PAYE is a key focus for Revenue should come as no surprise to employers given its importance to Exchequer returns; 39 percent of the 2017 total tax take in Ireland was raised from income taxes (exceeding the 16 percent generated from corporation tax) and PAYE represents a significant proportion of this figure (published in Revenue’s 2017 Headline Results).

The international context

RTR is not a new concept. A number of other countries have implemented, or are in the process of introducing, RTR, for PAYE or other tax heads. In terms of PAYE, for example, HMRC in the UK implemented Real Time Information (RTI) in April 2013 and the ATO in Australia will go live with its version (Single Touch Payroll) on 1 July 2018. Revenue introduced real-time reporting for Relevant Contracts Tax (RCT) in Ireland in 2012.

As such, many larger organisations will have previous experience of ‘going live’ with a ‘real time’ reporting system. This experience should help employers appreciate the importance of an implementation project in advance of the go-live date, with resources and buy-in from stakeholders within the business. However, we would caution against relying too heavily on the implementation experience of RTI for PAYE in the UK. This is because RTR in Ireland goes further than RTI. Some significant differences include the following:

1. Benefits in Kind (BIKs) must be reported for RTR in Ireland, whereas BIKs are outside the scope of RTI in the UK (the P11D is used);
2. In the UK, RTI was initially rolled out for a small pilot group of employers, before the full, phased roll out to all employers over a two year period. This allowed employers the time to familiarise themselves with the process and ensure their systems and procedures were capable of complying with RTI. RTR in Ireland will apply to all employers with effect from 1 January 2019;
3. HMRC in the UK applied an initial waiver on penalties while employers familiarised themselves with the operation of RTI. Revenue has not made any such commitment as to the application of penalties under RTR.

The context for large employers

Our focus in this article is on the likely impact of RTR for larger employers. Due to the scale and nature of their business, large employers may have one or more of the following:

• multiple payrolls
• high pay frequency
• business travellers and assignees
• benefits in kind (BIKs)
• company cars
• equity schemes subject to PAYE

Each of the above will present particular challenges under RTR. Why will these items be so challenging? Well, it is because of timing. Timing of reporting is at the heart of RTR and is likely to be a key concern for large employers.

RTR requires information to be reported to Revenue, and PAYE withheld, before or at the time the pay/BIK is delivered to or enjoyed by the employee. Typically, large employers have a division of roles and responsibilities, and often teams other than the payroll team may be responsible for providing information to payroll in time for processing. It can be difficult in practice for the payroll team to receive accurate and complete information from other teams within the business (or even external third party providers in some cases), on a real time basis. Revenue expects that large employers have the capacity and capability to report payroll accurately and in real time, effectively an expectation that an organisation’s ‘left hand’ (payroll) should know in real time what the ‘right hand’ (business units, operations and in certain cases external third party providers) is doing. Sometimes this is easier said than done!

In practice, employers may have a formal payroll process in place to ensure that PAYE is appropriately withheld on a full year basis. This process may involve slight delays in reporting, or ‘true ups’ done on a semi-annual or annual basis. While current payroll processes may ensure the appropriate collection and payment of PAYE to Revenue, RTR adds an additional onus on employers to do this in real time.

Year-end adjustments by employers have in the past been possible, even though these are not compliant with current PAYE Regulations. However, such year-end -focused processes will not be accepted from 2019 onwards. Revenue has made it clear that employers must have appropriate business processes in place to ensure that, to the greatest extent possible, the most accurate data is instructed to payroll during the period it is actually received/enjoyed by the employees.

In response to input from PwC and other stakeholders, Revenue has indicated that some degree of flexibility may be accepted for shadow payrolls and certain types of BIKs where the taxable value may vary from period to period e.g. car BIKs. It is not clear whether this flexibility will be formalised in regulations or Revenue guidance. However, it is clear that this flexibility will not extend to permitting year-end ‘true ups’ or adjustments.

With the advent of RTR, employers will be under increasing pressure to ensure that their payroll is right first time, every time. All data received, including corrections and the timing of submissions, will feed into Revenue’s risk analysis systems exposing the employer to the risk of Revenue queries, penalties and interest. Revenue is very open about the fact that employers will experience an increase in “Timely Targeted Interventions” arising from its analysis of this information.

The current context of your payroll process

So how can you as an employer start to get ‘real time’ ready? Below are a couple of practical tips to help focus your preparations.

1. Where are my current payroll process weaknesses or risks?

Employers need to identify whether there are any elements of their payroll process that need to change before RTR is implemented. First, employers should consider their current processes, for instance by asking themselves:

• Do I rely on later period or year-end adjustments and ‘true ups’?
• Do I often have to make corrections to payroll reporting?
• Do I rely on other stakeholders in the business (or externally) to provide the payroll team with timely information relevant to payroll?
• Do I have any complex payroll items e.g. BIKs, equity, business travellers?
• Do I have doubts as to the quality of the data I’m processing in payroll?
• Do I know that everything that should be included, is being captured by payroll?

Employers need to bear in mind that an outsourced payroll provider or a payroll function will process the information provided to it. However, typically it will not interrogate what is provided or query what is not being provided. This is not a new risk under RTR, but the impact of the risk is much higher, given Revenue’s visibility to any catch-ups, adjustments or corrections.

2. What changes will I need to make to be RTR compliant?

Timeliness and accuracy of data are key to RTR compliance. There will be an increase in data (volume and frequency) to be provided to Revenue. Employers should review the data requirements under RTR (published on Revenue.ie) against their current payroll processes to ensure they have appropriate procedures in place to capture and input relevant data to payroll on a timely basis.

All employers will have received a letter from Revenue this month regarding the introduction of RTR and the need to prepare in advance. Employers also need to provide certain information to Revenue in advance of 1 January 2019. Revenue has indicated that it will require employers to provide an accurate listing of current employees in June 2018. Employers should plan to review their payroll and ‘P45’ any employees who have left the business, and to ensure that all current employees are included, before they provide this Employee List to Revenue.

Who needs to be involved in the process?

In order to ensure a compliant response to RTR within the business, employers will need to identify and educate all relevant teams within the business who have a role to play in RTR compliance.

Resources will need to be assigned to preparing for RTR, and employers may also need assistance from professional advisors if they lack the in-house expertise or resources to design and implement a compliant payroll process. Even if payroll outsourcing is involved, employers will need to ensure buy-in from other teams as well as senior Finance/Tax/HR staff, to ensure that process changes are implemented and that teams don’t slip back into poor processes.

3. Timing?

Employers need to commence preparation early to ensure that the payroll process is ready for RTR before 1 January 2019. We recommend that any required amendments to processes or data collection be implemented during 2018, so that new processes are well embedded within the organisation in advance of 1 January 2019. This may have an added benefit, in that it may remove the requirement for an involved year-end process for the 2018 P35.

4. Software update?

RTR is not merely a software update. However, many employers use payroll software and a software update will also be required in order to prepare for RTR. Revenue has made a testing facility available to payroll software developers as of the end of March 2018, to allow payroll software developers to develop software which has the capability to interact with ROS. Employers should engage with their software provider early, to identify whether there will be an opportunity to test the new software in advance of 1 January 2019.

Final thoughts

Large employers with complex payrolls are likely to face a variety of challenges in implementing a compliant response to RTR, which smaller employers may not encounter. These challenges may be due to the scale of the business or the nature of operations and/or the complexity of compensation packages. The exposure to penalties may be higher, as there may be higher frequencies of corrections and adjustments on large or complex payrolls. To mitigate the risk of potential exposures, large employers need to consider what work needs to be done to improve or amend payroll processes in advance of 1 January 2019. This project should be commenced immediately in order to give employers the best possible chance of responding in a compliant manner to the demands of RTR.

Doone O’Doherty, Tax Partner, PwC, Leader of PwC’s PAYE Modernisation team

Email: doone.odoherty@ie.pwc.com

Emily Bourke, Tax Manager, PwC, PAYE Modernisation Team

Email: emily.bourke@ie.pwc.com