PAYE Modernisation – All your questions answered

Pay As You Earn (PAYE) modernisation is a new public consultation process initiative introduced by the Revenue to give the existing system a makeshift. The existing PAYE system is in place since 1960 and hasn’t been updated. The Revenue is working to modernise the PAYE system especially to overcome the problem of over and underpayment of taxes.

With PAYE modernisation, every employer must report their employees’ pay and deductions to the Revenue as and when they are paid. This helps the Revenue in deducting and paying the correct amount of Income Tax, Pay related Social Insurance, University Social Charges and Local Property Taxes.

How does the PAYE modernisation work?

At the end of every calendar month, the Revenue will issue a statement with the tax due for the period of time. The organization must positively return the statement to the Revenue by the 14th day after the month end after which payroll taxes have to be remitted by the 23rd day of the following month. If your company has employees paid both weekly and monthly, you must submit separate Payroll Submission Request (PSR)s to the Revenue.

Payroll submissions must be done by organizations before any taxable component cash payments are done to the employees. Employers must revise their internal processes and make sure the taxable expenses are calculated beforehand.

Can payroll corrections be made after submission?

Yes, payroll corrections can be made before or after the employee is paid. The organization has to make the payroll correction and send it to the Revenue which will replace the original submission.

When does the PAYE modernisation come into effect?

The new PAYE system is in effect from 1st of January, 2019.

What benefits does PAYE modernisation offer?

PAYE modernisation improves to streamline the business and reduces the burden of the employers to meet their PAYE reporting deadlines.

Should organizations complete the P35 after the year end? Should P60s be issued to employees?

No, the annual P35 is no longer required since the Revenue will be receiving the file submissions during each day period of time. This will also eliminate the need for P30s. However, organizations must remember that the P35 is still required for the year 2018 while it’s no longer required after that.

P60s need not be produced to employees after 2019, though it is still required for the year 2018 (similar to P35). The Revenue will issue a statement at the end of the year to all employees. All taxpayers will be able to view their certificate of earnings and deductions from the myAccount page on the Revenue portal.

How should Benefits and notional payments be reported?

If there are any Benefits-in-Kind (BIK) payments or notional payments, they must be reported to the Revenue on the day when it is paid or the earlier of the next payday or December 31 of the particular year. Company credit cards use is considered as notional payments. The benefit has to be provided by the organization on the date the card is used (and not when the bill is settled).

What are the penalty charges for non-PAYE modernisation compliance?

The Revenue implies a €4000 fixed penalty for every PAYE breach. There is also a fixed penalty of €3000 which will be imposed on the company secretary for every breach.

Have more questions regarding PAYE Modernisation? Speak to our experts today. Book your first no-obligation appointment here. 

What should all Irish Taxpayers know about PAYE and PAYE Modernisation?

On salary or wage or pension received by job doers, the Revenue levies income tax on behalf of the Irish Government. Instead of overburdening the taxpayers with a one-time payment of tax, Revenue allows them to pay tax as they earn.

PAYE stands for “Pay as You Earn”. Whenever the employers pay salary or pensions to employees or directors, they calculate and deduct income tax amount on employee’s income and pays to the Revenue. Wages includes sick pay, maternity or paternity pay and adoption pay. You pay tax over the whole year, each time you are paid, rather than paying tax in one lump sum.

Following taxes are deducted from the income of the employee –

  1. Income Tax
  2. Pay Related Social Insurance (PRSI)
  3. Universal Social Charge (USC)

PAYE pulls off the burden from employees’ shoulders, enabling them to evenly pay the tax amount on each payday in a tax year.

When should employers register for PAYE?

An employer must register for PAYE if he or she pays the employee more than –

  1. €8 per week (or €36 per month), if the employee is working full time,
  2. €2 per week (or €9 per month), if the employee is working part-time.

If an employer has recruited only one employee, who is domestic and is being paid less than €40 per week, then he doesn’t have to register himself for PAYE.

When is the concept of PAYE Modernisation?

Revenue is introducing PAYE modernisation from Jan 1, 2019, to ensure hassle-free communication with businesses and ensuring the deduction of correct PAYE amount.

Under the new system, companies will have to submit details related to the employees’ pay, tax, and other deductions, as well as details of joining and relieving to the Revenue. They have to provide the details on each payday, and the Revenue will ensure that the tax is correctly deducted at the right time for every employee.

The employer will provide the Revenue with payroll information for every employee he or she is paying, including –

  1. Directors
  2. Family Members
  3. New Employees
  4. Departing Employees
  5. PAYE Exclusion Order Employees

The employer also has to report PPSN of every employee. If the PPSN isn’t available, employee’s name, address, date of birth, and employer reference must be stated.

What are the amounts to be reported?

An employer has to report the following amounts about an employee –

  1. Gross Pay – All the income before any deductions are made,
  2. Pay for Income Tax – Gross Pay minus regular payments made by the employee into a pension fund (superannuation contributions)
  3. Pay for USC purpose – Gross Pay minus payments from Department of Employment Affairs and Social Protection
  4. Pay for Employee Pay Related Social Insurance (PRSI) purpose – Gross Pay plus notional pay plus Benefits in Kind (BIK) plus payments made to Approved Superannuation Schemes, Personal Retirement Saving Accounts (PRSA), Approved Revenue Funds (ARFs) and approved permanent health insurance schemes.
  5. Income tax Paid
  6. PRSI Class and Subclass
  7. Employee & Employer PRSI Paid
  8. USC Paid

PAYE modernisation will make the PAY reporting obligation simple and quick, besides improving the business processes also. What are your thoughts about PAYE modernisation? Let us know in the comment section below.

Are you ready for PAYE Modernisation? The new real-time reporting regime will be operational for all employee payments being made from 1st January 2019.

Book your free consultation here.