The Irish PAYE system was first implemented back in 1960 with no major changes since its introduction. For the past few years, Revenue has been working on a much needed and well overdue facelift of the Irish PAYE system.
The new system, known as PAYE Modernisation, was introduced on the 1st January 2019. Many employers are left confused about what the new PAYE system will entail for their business.
Key Changes with PAYE Modernisation
Essentially, all of the current ‘P Forms’ - P30s, P35s, P60s, P45s and P46s - will be abolished, and in their place will be real time periodic submissions to Revenue. These will be known as Payroll Submission Requests (PSR) and will need to be submitted ‘on or before’ the date an employee is paid each pay period. In most cases, this means a file will be submitted either weekly or monthly.
As Revenue will be receiving file submissions each pay period, the annual P35 will no longer be required. In addition, this periodic file will eliminate the need for P30s. The files being submitted each pay run will also have details of employees commencing and employees leaving. This will mean that P45s and P46s are no longer required to be completed by the employer. At the end of a tax year, the individual taxpayer will be able to view and print their official certificate of earnings and deductions directly from the MyAccount portal on the Revenue website. This means that P60s should no longer be needed.
The retrieval of tax credits will also change, with a Revenue Payroll Notification (RPN) replacing the current tax credit certificate (P2C). Employers will be required to always use the most up-to-date RPN when calculating employees’ pay and deductions.
Regardless of how frequently an employer will be required to send submissions to Revenue, the payment date will remain the same. There will be no change to the method that employers currently use to make the Revenue payment.
PAYE Modernisation with Payroll Software
PAYE Modernisation should not add to an employers workload. Payroll software that caters for PAYE Modernisation will improve and streamline the payroll communication between employers and Revenue. Employers using payroll software that is Revenue compliant will be able to create and send the periodic PSR submission directly to Revenue from the payroll software at the click of a button.
This integration with Revenue will also allow employers to automatically retrieve RPNs for employees from within the payroll software. Changes to an employees tax credits and cut-offs can then be updated in the payroll software with just one click. Payroll software will also be able to identify employees who are on the RPN but not set up in the payroll system and enable the user to set up these new employees in the payroll software instantly.
Manually Processing Payroll with PAYE Modernisation
Many employers still calculate their payroll manually. With PAYE Modernisation, these employers can still process their payroll using a manual, spreadsheet or paper-based system, but this outdated process will be time-consuming, cumbersome and prone to error. Failing to correctly comply with PAYE Modernisation will result in penalties or fines being imposed from Revenue.
A manual approach will be quite laborious and difficult to ensure accuracy. Manual processors will need to actively login to the ROS portal each pay period, be it weekly or monthly, and manually enter the required details for each of their employees, a bit like manually completing a P35 each pay period. Also, before processing the payroll in any week, manual users will need to religiously log in to ROS to get details of tax credits and cut off points. The manual retrieval facility in ROS will only be available for employers with 5 or less employees.
Many business owners believe that a manual payroll system is a relatively easy way to manage their payroll and can seem like the most cost-effective option. Along with the additional time required to process payroll, a manual system can result in inaccurate payroll processing as it does not have built-in processes to catch mistakes or notify you of payroll changes. Additionally, manual records are very difficult to maintain, store securely under GDPR and are subject to greater human error. It is important to note that late periodic submissions or a constant pattern of correction submissions will potentially result in non-compliance penalties and fines.
Integration with Revenue
Revenue has strongly advised employers to review their payroll processes and systems to ensure they meet the new PAYE Modernisation requirements for 2019. Payroll software which caters for PAYE Modernisation will improve and simplify communications between employers and Revenue.
If you have the correct payroll software tools in place, the ongoing reporting to Revenue will be seamless, enabling you to reduce the manual administrative process. Direct integration between payroll software and Revenue will reduce the administrative burden by automating the PSR submission to Revenue and by automating the retrieval of RPNs from Revenue, ultimately saving time and reducing the risk of errors each pay period.