By Gemma Jacobsen, KPMG, IPSA Council Member
Revenue launched a consultation in October 2016 on the modernisation of the Pay As You Earn (PAYE) system, on foot of which Revenue has initiated a programme of modernisation. Finance Act 2017 has already brought into force some new provisions for 2018 and other PAYE modernisation provisions will take effect from 1 January 2019. There will be substantial redrafting of the PAYE regulations expected to occur in 2018 to take account of the fundamental process changes to be the operation of PAYE under the PAYE modernisation regime.
The main practical implication of PAYE Modernisation for employers is that effect from 1 January 2019, employers will be required to accurately report employee remuneration and PAYE data to Revenue on a real time basis (Real Time Reporting). This will mean that, in any given payroll run where a payment is made or a benefit provided to an employee or director, the PAYE deducted and remitted must be completely accurate. Revenue will also have significant visibility of employee remuneration data for each payroll run in the year.
Employers will need to get RTR ready both in relation to (1) their employee data and (2) the taxation treatment of all elements of employee remuneration. It will be particularly important for employers to make sure that they are not only taxing share based remuneration in the correct manner through payroll but also have the relevant employee data necessary to operate the payroll system on a real time basis. Share based remuneration has been identified as one of the elements of remuneration where there is a higher level of complexity in being payroll tax complaint. Revenue have indicated that where they note amendments to payroll records, there will be more timely interventions by Revenue.
An anti-avoidance measure has also been introduced in the Act whereby if PAYE is not operated on a payment/benefit to an employee (with the exception of small benefit exemption or PAYE Settlement Arrangement), and the employer has (1) not deducted PAYE in respect of any emoluments paid to the employee or (2) disguised by omission or otherwise, the making of the payment or the nature of the payment in its books or records, the deemed net payment must be regrossed and the relevant tax payment paid by the employer.
Right now, however and effective since 1 January 2018, the taxation of employment income for employees and non-proprietary directors is moving from an earned to a paid basis. This does not apply to proprietary directors. There are transitional arrangements for income taxable in 2017 on an earned basis and in 2018 on a paid basis. The employee can make a claim to be taxed on a paid basis in 2018 if the income is also taxable on an earnings basis in 2017.
