PAYE Modernisation Ireland: What to Expect

Ireland’s PAYE Modernisation project will soon come into effect: how will the reforms affect employers and the payroll process?

Ireland’s PAYE modernisation project will be introduced on 1 January 2019, ushering in a new method of reporting employee tax and pay information to the Revenue. Under this new system, the reporting process will be simplified, moving away from the submission of paper forms and towards a digital mechanism known as the ‘Employer Submission mechanism’.

Although PAYE modernisation primarily concerns the functionality of payroll software, employers will have certain new responsibilities during the process, and should already have taken steps to ensure their businesses are in compliance with the regulatory landscape. To date, Revenue Ireland has been liaising with Irish businesses to ensure they are prepared for the transition and understand their obligations. 

PAYE Preparation

The first stage of preparation for the PAYE modernisation project took place in October, when employers were required to upload employee details to the Revenue Online Service (ROS). Under the new system, these records will be used to create an Employment ID for each employee and ensure that information is up to date across both Revenue and employer payroll records.

Practical Changes

With its introduction imminent, it’s important that employers know what the practical changes and consequences of the Employer Submission mechanism will be. While the pay process itself will remain broadly unchanged, certain technical details may affect the way employees and employers manage and handle payroll.

From an Employer Perspective

In the existing PAYE system, the P30, P35, P45, P46, and P60 forms must be completed and submitted to Revenue as part of the reporting process. Under the new system, however, the Employer Submission mechanism will abolish the requirement to submit ‘P’ forms.

  • Employee Tax Credits - Revenue Payroll Notifications (RPN) will be downloaded from the Revenue with the relevant information before the payroll is processed. The information in the RPN file will be used to update employees’ personal records to ensure they are taxed correctly in line with the revenue records
  • Payroll Submission - Once the payroll has been signed off, the payroll submission file will be uploaded to the Revenue before payment to employees can be made. The information in the file will be used to update employees’ personal records and create the employer’s Statement of Account (issued by the 5th of the following month). The Statement of Account can also be linked to a ROS direct debit mandate - and used to collect payments on the 23rd of the following month (currently P30 return).
  • Notification Time: Until now there has been a degree of uncertainty over the time it will take to acknowledge and authorise payroll files. Based on time tests carried out, the Revenue expects the response time for the file uploads to be between 10 and 15 seconds. Since payments cannot proceed without authorisation, employers should account for this uncertainty in their payroll process.
  • Payroll Changes: It will not be possible to make changes to payroll once the file has been uploaded to the Revenue. Adjustments, if necessary, must be made in the next period.

From an Employee Perspective

  • Tax Credits: 2018 employee tax credits will not be transferred over to the new PAYE system, and all employees not registered with their employer will be placed on emergency tax credits from 1 January 2019. To be taken off emergency tax credits, employees must register with ROS to obtain a Revenue Payroll Notification (RPN) - which replaces the current tax credit certificate P2C. Going forward any new starts will need to advise the revenue they have taken up employment with the company to avoid being on emergency tax. In January this should only affect some new starts as all other new starts have already been uploaded to the revenue.
  • Emergency Tax Allowance: Employees who are not registered for PAYE, and have no RPN, will have their Emergency Tax Allowance reduced to 4 weeks at 20%. After 4 weeks, that amount will rise to 40%.
  • P45 & P60: Like employers, employees will no longer have to deal with ‘P’ forms as part of the reporting process. Information previously submitted on P45s and P60s will now be transmitted to ROS and collected on the employee’s personal account. P45s for 2018 will not be applied under the new PAYE system, although P60s will be issued for the 2018 tax year.

What Next?

Although the transition to PAYE Modernisation should not create significant payroll friction, employers should be prepared for potential employee queries. In particular, employees may ask about the removal of P45 and P60 forms, or how to access their pay information on ROS.

Finally, although it will go live on 1 January 2019, employers should pay close attention to information issued by Revenue regarding PAYE Modernisation at this early stage. As the most significant reform of PAYE since the 1960s, its likely further adjustments and guidance will be forthcoming.

For more information on Ireland’s tax and payroll processes, read activpayroll’s Global Insight Guide to Ireland.