PAYE programme revamp to create costs for employers

Employees are to receive entitlements from tax allowances and credits more quickly under a new system being introduced in 2019, but it will also mean additional costs for employers ,who will in future have to provide information to the Revenue Commissioners on a real-time basis.

The Finance Bill provided for a number of legislative changes to introduce new processes for employers and the Revenue, under a PAYE modernisation programme.

In future, the Bill said, “employers will update and report their employees’ pay and deductions to Revenue as they are being paid and, in this way, Revenue will have the most up-to-date information possible”.

The explanatory memorandum published along with the Finance Bill said the modernisation “will involve the most significant reform of the PAYE system since its introduction in 1960”.

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As a result, employees will “get the full benefit of all their entitlements during the year” with the ability to update tax allowances and credits on a much more regular basis. It added that “Revenue can use up-to-date pay and deduction data in its compliance activities and risk analysis, and policymakers will have accurate information to inform decision-making and forecasting.”

Compliance costs

The PAYE modernisation programme was first flagged by former minister, Michael Noonan, a year ago in the 2017 budget.

Tax experts say there could be significant compliance costs for businesses, who will have to have the technology to provide ongoing updates to Revenue. They could also in future face heftier penalties for any errors made in submitting PAYE returns, a change which is due to come in from next January.

According to Dr Brian Keegan, director of public policy and tax at Chartered Accountants Ireland, "In broad terms, the changes to the PAYE system which have been flagged for some time as PAYE modernisation will require employers to use payroll software which can talk directly to Revenue systems."

He said that the changes were also being used “ to tighten up” on PAYE rules and regulations. “ In particular, there is a new rule which will calculate the highest possible settlement amount on any PAYE mistake an employer makes.”

Employees should get the benefit of credits and allowances to which they are entitled more quickly, he said.

“However, Revenue rely on employers to collect on their behalf the bulk of the income tax paid in this country, and this is making the employer’s job a bit harder. It is another addition to the cost of employing a worker on top of the increase to employers’ PRSI announced on budget day.”