The most significant change to Ireland’s PAYE system in over 60 years is coming into effect in two weeks time, writes Kieran Coughlan.
The single biggest change is that employers, or their accountants/payroll or tax agents, must notify Revenue in advance of each and every pay date.
Revenue’s system will issue a RPN (Revenue Payroll Notification) advising the employer of the correct amount of PAYE, PRSI, USC and LPT to be deducted from the employee’s wages. The RPN will be based on live information, and will be updated throughout the year by Revenue to take account of an individual’s changing circumstances.
Revenue contend that the system “improves the accuracy, ease of understanding and transparency of the PAYE system for all stakeholders”.
From an employer perspective, there will undoubtedly be a much higher level of administration that in the case under the current regime.
Currently, an employer’s interactions with Revenue may be as little as once a quarter, to file a P30 return of taxes withheld.
For weekly payroll, the number of interactions could increase to more than 16 per quarter. These changes will undoubtedly add up to a significant cost for business, both in terms of business disruption, additional software requirements if processing payroll yourself, and accountants’ fees if payroll is outsourced.
The application of the new scheme is mandatory, and the costs of non-compliance are severe, with Revenue having the ability to apply a fine of up to €4,000 for each and every incident of non-compliance, while a further penalty of €3,000 can apply to company secretaries.
Any person paying wages is obliged to register as an employer, where the amount of wages paid exceeds €8 per week, meaning in reality there is no practical amount below which a person can avoid registering as an employer.
A separate exemption applies in relation to domestic staff. You do not need to register as an employer if you have a domestic employee, and you pay them less than €40 per week, and you have only one such employee.
Revenue’s tax briefing issued in October 2018 confirms that persons employing childminders, au-pairs or other persons providing domestic duties within the home are governed by these criteria.
Regardless of the type of employee, there is no grace period where an employer can pay an employee without operating under the new notification system. Furthermore, there is no amount of acceptable casual labour which can be paid without operating the system, nor is there an acceptable period below which an employer need not operate the system.
It will not be an acceptable excuse to state that the employee was only working for a few days or on trial.
For farmers who pay children for working on the farm, or who pay college fees in lieu of wages, the same criteria apply, in that Revenue must be notified each time payments are made on behalf of such employees.
The new system also places the onus on employees to register their employment, via Revenue’s online “MyAccount” system (this change has been in effect for all of 2018). The practical effect of these rules means that an employee receiving their first pay cheque who has not notified Revenue of their employment, with their employer, or who has not allocated their tax band and tax credits to that employment, will be subject to tax at a minimum rate of 28%, rising to 52%, or — worse still — an immediate 52% tax withheld where no PPS number has been provided by the employee.
Farmers, agricultural contractors, builders and tourism activities are likely to face significantly heavier challenges in meeting these new requirements, because staff may be seasonal, and in the case of foreign students coming to Ireland, it may take weeks before a PPS number will issue.
Paying individuals as “self-employed” contractors to avoid the requirements to register and operate PAYE will not wash with Revenue, if indicators suggest that the individual is an employee. Revenue would consider an individual should normally be considered an employee, if he or she is under the control of another person who directs as to how, when, and where the work is to be carried out, supplies labour only, receives a fixed hourly/weekly/monthly wage, is not exposed to financial risk and works for one person.
Separate guidance is available from Revenue to assist employers in determining whether a payee is to be considered a self-employed individual or an employee.
Revenue have published their new manual entitled “The Employers’ Guide to PAYE with effect from January 2019” just this week, which outlines comprehensively how the new regime is to apply. The key message is that from January 1, 2019, if you are making payments to an individual in respect of a supply of labour, you or your agent must notify Revenue in advance of each and every payment made, and adhere to the notifications issued at that time regarding the amount of tax to be withheld.