PAYE Ireland: Preparing your Payroll for Change

Ireland is transforming the way its businesses report to Revenue - employers should ensure they’re ready for the change...

Introduced in 1960, Ireland’s Pay-As-You-Earn (PAYE) system will undergo its most significant reform to date on 1 January 2019. In more detail, the PAYE Modernisation Project will change the way employers report employees’ pay to Revenue Ireland. Essentially, PAYE Modernisation will integrate a real-time reporting mechanism, meaning employers will be keeping Revenue informed of the relevant tax and payroll information every time they pay their employees.

As an employer, it’s vital to understand how PAYE Modernisation will affect your tax and payroll system: read our guide to ensure your business makes the change successfully.

What does PAYE mean?

Pay-As-You-Earn is the mechanism which allows employers to deduct tax from employees’ salaries - according to a PAYE code - and pay it to the tax authority during monthly or weekly payroll. Information about tax collected and paid must also be reported to authorities - in Ireland’s case this used to take place annually using the P35 form. PAYE modernisation will change the way this takes place.

What is PAYE modernisation?

From 1 January 2019, the reporting process for employers who register for PAYE in Ireland will change: instead of a yearly P35 submission, PAYE information will involve an ‘Employer Submission’ to Revenue every time pay is processed. The Employer Submission mechanism will incorporate all the information currently included on the P35 - which will be abolished.  

How will employers be affected?

Most employers won’t need to change their payroll process in any significant way since the Employer Submission will be processed using their existing payroll software (employers should check with their software providers that their platform is ready for the change). Along with the P35, the P30 and P45 form will also be abolished, with their information incorporated into the electronic Employer Submission.

Revenue has announced they will provide an online data capture mechanism for employers who do not use payroll software to make their Employer Submission.

How will employees be affected?

The new PAYE system will also abolish the P60 form - in its place, employees will access their tax and pay records using Revenue’s online portal, and be entitled to a pay and deduction statement at the end of the tax year.

Since PAYE will be updated in real time, employees will be able to track that information throughout the tax year, while Revenue will be able to ensure that tax credits and other mechanisms are being used to maximum benefit.

How should payroll prepare?

In preparation for PAYE modernisation, employers should ensure all standard payroll compliance requirements are met - such as registering all employees with Revenue and keeping all payroll records and tax certificates up to date. Employers should obviously also make sure they’re using a payroll software platform which facilitates the Employer Submission. Beyond the issues outlined above, the payroll process will change in a number of ways:

  • The process of reporting new employees and leavers will change under PAYE modernisation - the current P45 and P46 forms will be retired.
  • New mechanisms for making in year and out of year amendments and corrections will be introduced.
  • A New P2C format and process will be introduced.

What kind of penalties will non-compliance involve?

Although Revenue is likely to take a realistic and practical approach, penalties will be in place for employees who fail to comply with PAYE Modernisation requirements. Details on penalties are yet to be released - but will be confirmed on the Revenue website in coming months. If you’re concerned about your duties and obligations, use the PAYE helpline or PAYE Online Ireland, to contact Revenue and discuss the problem.

What next?

In preparation for PAYE Modernisation, Revenue is asking employers to submit a List of Employees to Revenue through Revenue’s Online Service (ROS). This will ensure that both Revenue and employer records are aligned and employers are receiving the most up to date employee information to calculate their deductions. This is being done over three tranches and will be completed by the 31st October 2018. A new Employment ID has been created which will be a unique key which identifies the employee and associated employer.

activpayroll will be carrying out these submissions on behalf of the customers. At the end of the month all new starts and leavers will be uploaded to ROS as normal and the Employee List will then be extracted and uploaded which should ensure the records match to the revenue list of current employees.

activpayroll will be making the payroll submissions on behalf of the employer as per current practice so the processing changes should be minimal although every customer will be reviewed and advised if any change to the normal processing will be required.

For more information about Ireland’s tax and payroll landscape, explore activpayroll’s dedicated Ireland Global Insight Guide.