Following on from the Budget announcement earlier this week, the Irish Revenue has launched a consultation on PAYE modernisation as part of what it is calling ‘the most significant reform of the administration of the PAYE system in over 50 years’
Finance Minister Michael Noonan said the aim is ‘to help employees manage their tax affairs better; reduce contact between employers and Revenue; reduce administration costs for both employers and Revenue; improve compliance; and provide up to date information for policy makers.’
Under the proposals, employers will report to Revenue pay, tax and other deductions, as well as details of any employees leaving the employment, at the same time as they run their payroll. Details of employees starting employment will be reported before their first pay day. The final payroll run in the year will generate a pre-populated statement setting out the total tax deductions for the year both at the level of the employer and the employee.
Prior to the start of each year, an online statement setting out the tax credits and standard rate cutoff point for the upcoming year will be made available to each employee. This will be based on estimated income and information available to Revenue for the employee.
Employees will be prompted to make any necessary adjustments to or to update this online statement, including claiming any additional entitlements. Based on this information a tax credit certificate, reflecting the most up to date information possible, will then issue to the employer and employee and this will ensure tax deductions are correct when salary or wages are being paid during the year.
Revenue will carry out periodic reconciliations throughout the year of employees tax deductions, based on actual pay and tax details, to ensure that employees optimise the full benefit of their tax credits and rate bands across employments during the year.
Ad-hoc reconciliations will be a feature of the new system based on any changes in circumstances arising during the year. An automatic end of year review will be carried out for all employees based on income on Revenue’s records from all employments, tax credits claimed and available third party data and will confirm the correctness of the tax paid for the year.
The Irish Revenue said PAYE modernisation will allow for significant streamlining of employer business processes and reduce the administrative burden by integrating PAYE reporting obligations into the normal payroll process. Form-filling required by employers will be significantly reduced - for example, Forms P30, P35, P45s, P46s and P60s will be eliminated. The system will automatically generate an end of year reconciliation for the employer.
The tax authority also said that having up to date information from payroll systems allows for the possibility of employees being able to make claims during the year for what are currently end of year reliefs, such as health expenses. This is a policy matter which will be explored further with the Department of Finance.
It is planned that PAYE modernisation will be operational from 1 January 2019.
The consultation closes on 12 December.
