The current PAYE system in Ireland is being reformed and modernised with the introduction of real-time reporting (RTR). This change to how employers and employees interact with the Revenue Commissioners (Revenue) represents the most significant change to the PAYE system since it was originally introduced.
Employers will be required to calculate and report employees’ pay and deductions in real time. This is intended to ensure that every time employers run their payroll the correct amount of deductions are being made at source from the employees, reported to Revenue and paid over by the employer.
The new system will be effective from 1 January 2019 and will apply to all employers, regardless of size. With effect from this date, Revenue will issue a statement after the end of each calendar month, based on submissions received by the employer, which sets out the tax due for the period. The statement is deemed a statutory return by the 14th day after month end. However, there is scope to amend this statement prior to the above date. Payroll taxes are then remitted to Revenue by the 23rd day of the following month.
The year-end P35 filing will no longer be required as the reporting process must be correct for each pay period.
Penalties of EUR 4,000 per breach can apply, so it is essential that employers are ready.
Revenue have advised that where a shadow payroll is being operated in Ireland then the payroll submission to Revenue can be aligned with the Irish employer’s next pay date for equivalent Irish employees.
For example, if a US individual is assigned to Ireland and the US employer operates a payroll on the 14th and 28th of the month but the Irish entity pays their local employees on the 25th of the month then the assignee’s pay details for the 28th of January and the 14th of February should be included in the Irish entity’s payroll submission on 25th February.
If an employee of a foreign entity does not have a set number of working days in Ireland each month then a best estimate of the number of days an individual works in Ireland should be used if actual details are not available when the payroll process is run. If there are more (or less) days than originally estimated the pay details should be amended in the following payroll submission.
When filing the payroll submission with Revenue, the employer will need to flag any employees on a shadow payroll by ticking the relevant box on Revenue Online Service (ROS)/payroll software.
Employers may have obtained a release from the obligation to operate payroll taxes on outbound expatriates who continue to be paid by the Irish employer during an assignment. However, the employee may remain on the Irish PRSI system with contributions being collected through the monthly payroll process. In these cases, Revenue have indicated that a “best estimate” of benefits, allowances, and expenses should be included in each payroll submission and then corrected in the following payroll submission, where required.
Benefit in Kind/Notional payments
Employees are taxable through payroll on all Benefits in Kind (BIKs) they receive. While most BIKs are for a fixed amount, e.g. medical insurance, the BIK calculations on company vehicles can vary (due to variances in mileage) each month, which may result in under-declaration of BIK. It is strongly recommended that employers require employees to submit their mileage sheets in a timely manner. Revenue has indicated that employers, at a minimum, should carry out quarterly checks on mileage and adjust the payroll records where necessary.
A key area of concern continues to be the application of RTR to share plans, such as RSUs. There can be a significant amount of administration involved in determining the number of shares to be awarded to an employee, the value of the shares for tax purposes and the relevant date for taxation of the shares. In addition, the scheme may allow for the sale of a portion of the shares to cover taxes payable by the employee. All of this information needs to be compiled, assessed and provided to the payroll team to enable them to capture the data and accurately report it to Revenue. It is difficult to envisage how these rewards can be processed on a real time basis or how ‘best estimates’ could be applied. It is hoped that Revenue will provide clarity to this area when issuing their updated PAYE Guidance Manual this month.