July 19.2017, 8.59am
SMART PAYE: Are You Ready?
The new world of Digital HR is transforming the way companies manage their HR and Payroll processes. With impending legislative compliance changes on the horizon, companies are recognising the need, more than ever before, to ensure they have modern solutions in place to avoid potential compliance breaches and costly fines.
One of the major payroll changes being introduced by the Irish Revenue is SMART PAYE. This is a new system being introduced in January 2019 which will modernise the Pay As You Earn (PAYE) process, requiring employers to provide detailed information to Revenue every time employees are paid rather than through the current P35 year end return.
What is SMART PAYE?
Referred to as PAYE Modernisation when initially announced, SMART PAYE is arguably the most significant change ever made to PAYE. This new and improved way of reporting, is designed to make PAYE submissions more efficient – meaning you will submit real-time information to Revenue every time you pay employees rather than once a year at Payroll Year End via the P35. Revenue having this real-time information means they will be able to issue accurate and timely instructions to employers, ensuring that an employee’s tax position at any time is correct resulting in less under or overpayments of tax.
SMART PAYE doesn’t change the way companies calculate PAYE, it just means more regular submissions to Revenue are required. For those with experience of UK Payroll, it’s a similar concept to Real Time Information (RTI) where employers are obliged to file payroll returns electronically for each payroll run but with some key differences.
In preparation for go live in January 2019, Revenue are providing test facilities, consultations with employer groups, and consultations with software companies to ensure a smooth transition for all companies.
What does this mean for employers?
This new process will involve an Employer Submission to Revenue each time an employee is paid. The Employer Submission will contain information similar to that which currently appears on an employer’s P35 return.
In addition, the introduction of this new real-time reporting system will mean significant changes to current payroll processes, including:
- P35 submissions will be replaced with a SMART PAYE submission file returned to Revenue after every payroll run.
- Creating and ceasing of employments will involve a new process of reporting to Revenue in turn making the current P45 and P46 processes defunct.
- P60s for employees will be replaced by a final pay and deductions statement for the year.
- New facilities for in year and out of year amendments/corrections.
- New P2C format and process.
What does this mean for employees?
P60s will be abolished and employees instead will be entitled to an end of year pay and deduction Statement. Employees will have access to their pay and tax record with Revenue online, which will be regularly updated throughout the year as they are paid.
This access and reporting on real-time information will enable Revenue to carry out periodic reviews to identify if employees are utilising their tax credits and standard rate cut off point to the maximum effect e.g. where an employee has 2 employments and, where applicable, employees will be prompted to reallocate tax credits and standard rate cut off point.
Will this create additional work for payroll operators?
Revenue will no longer facilitate the current process of uploading or downloading files. For most companies this new process will not increase the workload for employers however, companies will need to have a payroll solution in place that is capable of communicating all required information electronically to Revenue.
In addition, P30s, P35s and P45s will be abolished with employers submitting this information to Revenue electronically in the Employer Submission. For smaller employers, the reporting obligations may increase however, revenue aim to provide an online data capture mechanism to allow employers report payments where payroll software is not in use.
Key dates to remember for SMART PAYE?
SMART PAYE will go live in January 2019. In preparation for this go live some other key dates for employers to note are:
- July 2017: Revenue will publish all SMART PAYE submission data requirements and business rules
- December 2017: Finance Act changes for SMART PAYE provisions
- March 2018: A fully functional test environment will be available for pilot testing
However you manage your payroll, make sure you’re ready!
If outsourcing your payroll be mindful that submitting SMART PAYE returns is still your responsibility. Ask your provider what they’re doing to ensure they comply with SMART PAYE requirements and if it means any changes for your business.
It’s essential that you have payroll software in place that’s legally compliant with the support you need to submit PAYE in real-time. Be sure to check that your payroll software provider will be SMART PAYE ready.
Revenue aim to provide an online data capture mechanism to allow employers report payments where payroll software is not in use.
What can employers do in preparation for SMART PAYE?
Employers need to ensure that their existing records are up-to-date and payroll obligations are being met. In doing so they need to:
- Register as an employer, if not registered already.
- Take reasonable steps to verify the PPSN provided by employees, checking it against a Public Services Card, P45 or other Revenue or DSP correspondence. Where an employee does not hold a PPSN, they should contact the DSP to apply for one.
- Register all employees with Revenue, P45 (3) or P46 where the employee has no P45. Where the new employee has not worked in Ireland before, the employee must register the employment online using the jobs and pension service available in myAccount. The jobs and pension service can also be used by employees who are changing from one employment to another. Once the employment has been registered, Revenue will issue a tax credit certificate.
- Issue a P45 when an employee ceases employment and submit it to Revenue.
- Ensure you have received an up-to-date tax credit certificate for each employee.
- Ensure you hold a complete PAYE, PRSI and USC record for each employee at the end of the tax year.
What approach will Revenue take for non-compliance?
While Revenue will take a practical approach when it comes to the application of penalties on the introduction of SMART PAYE, non-compliant employers can expect Revenue intervention. More information on penalties will be confirmed in the coming months so it’s important for companies to regular check the Revenue website for updates.
Would you like to know more about how CoreHR can help you achieve payroll success?
By Darren Brennan