Real time reporting for PAYE (RTR) was introduced on 1 January 2019 with the aim of making the payroll reporting process more efficient and reduce the administrative burden on employers. Despite a fair amount of scepticism that Revenue were too ambitious in introducing these major changes quite quickly, RTR has been largely successful in achieving its main objectives, writes Claire Davey, Head of PAYE and Personal Tax Compliance.
Inevitably, changes of this scale were bound to present challenges for employers and sure enough common teething problems have been identified.
For example, Revenue have identified basic issues with employers using incorrect Revenue Payroll Notifications (RPNs), including incorrect pay dates on the Payroll Submission Reports (PSR), inaccurate PPS Numbers as well as the incorrect calculation of tax deductions. To date Revenue have allowed employers to get to grips with the new reporting system and have offered support rather than handing out penalties for routine errors which has been welcomed.
Revenue recently announced they will be commencing compliance checks on the application of RTR by employers. This announcement emphasises the need for employers to have proper PAYE controls, processes and procedures in place in order to ensure the accuracy of their payroll data.
Further, due to the extent of the government investment and complex nature of income support measures introduced as a result of Covid-19, Revenue are now actively carrying out compliance checks on the wage subsidy schemes. As part of these checks Revenue indicated they would also be addressing any identified issues arising in respect of the operation of RTR and this would be an opportunity for employers to address any other outstanding tax issues.
In light of this, there is no better time for employers to carry out a review of their RTR administration to date by identifying any historical errors and correcting procedures going forward appropriately. Employers should also consider the corrective action that may need to be taken as a result.
This article is the first of two parts which aims to highlight the more complex challenges arising from RTR thus far, make recommendations to employers on correcting errors made to date and how to fix these matters going forward.
This first part focuses on what might be termed the lesser known employer requirements under RTR which are not necessarily the common issues being encountered. With part two covering the special requirements that should be observed when dealing with expatriate employees.
While most of this information is similar to that what was previously provided through the former annual post year end form P35 process, there are additional reporting requirements employers should be aware of in making their payroll submissions.
In summary, some of the additional reporting requirements include:
Non-taxable ex-gratia payments
Prior to RTR employers were obliged to report to Revenue no later than 14 January of the following tax year both taxable and non-taxable termination payments - only taxable ex-gratia payments were reported on an employer’s year end P35 and included in the employees’ P45 on cessation of the employment. With the introduction of RTR, employers are now required to report both taxable and non-taxable lump sum payments on their PSR. Statutory redundancy payments are, however, excluded from this requirement.
New pension reporting obligations
If there are employees that are members of an approved Occupational Pension Scheme or a Personal Retirement Savings Accounts (PRSA), employers will already be familiar with the statutory employer reporting obligations relating to pensions. However, with the introduction of RTR, employers are now required to report amounts contributed by an employee to an AVC scheme.
Where an individual is a director of the company, the “director" checkbox should be ticked, and the relevant type of director should be specified. With effect from 1 January 2019, the director type now indicates whether or not he/she is a proprietary director.
Payments to directors
The PAYE system applies to payments to directors, both proprietary and non-proprietary, as it does to any other employee. This means that under RTR, any emoluments paid to directors must be reported through the PSR at the time of payment.
Payments accrued to proprietary directors which are not paid within six months of the end of the accounting year are deemed paid on the last day of the previous year. In such instances, an employer must make an amendment to the original payroll submission for that period and resubmit to Revenue.
Benefits in Kind
Given that the taxation of certain benefits in kind (BIKs) can be quite complex, employers may pre-2019 have relied upon the year end process to adjust for any shortfalls when completing their year-end P35 return. With the introduction of RTR, this is no longer possible, and Revenue expect these items to be reviewed regularly (at least quarterly) with adjustments processed in the next payroll submission.
Revenue have advised that BIKs and other notional payments should be reported on:
This applies to items such as share based remuneration, medical insurance premiums, taxable professional subscriptions paid directly to the relevant body, etc.
It is the responsibility of the employer to ascertain the correct BIK amount to be processed through payroll. The employer must be satisfied that “best estimates” have been used in arriving at BIK amounts.
Revenue will regard an employer as having made a best estimate where a genuine attempt has been made to calculate the taxable benefit based on all details available to the employer at the time the benefit is provided. Provided the evidence is available that this is the case and any corrections are made regularly, no issues should arise.
It is important to consider items that are provided in December. Employers tend to pay employees early in advance of the Christmas holidays. Where items are provided to employees after the cash payment date, a separate payroll submission will be required on or before 31 December.
For employers with company cars, it is a common problem where the taxable benefit is based on a lower percentage than the standard 30% of the open market value of the vehicle provided.
In instances where the benefit is reduced by reference to the employee’s business mileage, the employer needs to ensure there is evidence of all business trips available to the payroll department regularly. Ideally this would be provided on a monthly basis with adjustments for actual business mileage incurred being processed through the following months payroll.
Where it is not practical from an administrative point of view to process the adjustment in the following month, Revenue have confirmed that any adjustments can be made at a minimum on a quarterly basis but no later than this. Where adjustments are not made, this exposes the company to interest and penalties.
While this might be challenging for employers, there is a need to ensure that employees provide their mileage records in a timely manner and verification procedures and reconciliations are carried out frequently/periodically to ensure compliance.
Share based remuneration
Since 1 January 2011, Irish employers have been operating PAYE on certain share-based remuneration. This can be complex for the following reasons:
Given the complexities involved in reporting share based remuneration, Revenue have confirmed that in the absence of a precise valuation, an employer will need to include a “best estimate” of the value of shares. When precise values are known, any adjustments are to be included in the next PSR to Revenue.
As it is common for employers to have shares vest on 31 December, Revenue recognise that it may not be possible to obtain the closing price by close of business 31 December. Where this is the case, Revenue will regard the shares as having vested on 1 Jan and they should be included in the next payroll submission.
Many employers reimburse employees for items that, while allowable under the company expense policy, are in fact taxable and subject to PAYE.
Such items may previously have been picked up through retrospective reviews throughout the year and included on the year end P35. This type of catch up exercise is no longer possible and where taxable expenses are reimbursed to employees/directors they must be reported in the PSR on or before the payment date.
Where expenses are reimbursed through accounts payable or out of cycle payments, an additional/separate payroll submission may be required. This may create practical difficulties for employers as often the payroll department do not have oversight of expense claims and so the tax treatment of expenses may not be assessed prior to payment to employees.
Therefore, employers should ensure sufficient internal processes and procedures are in place to ensure all taxable expense reimbursements are communicated in a timely manner to the payroll department.
Where expenses are paid through a company credit card, Revenue are prepared to accept for the purposes of the operation of RTR, such payments can be regarded as “notional pay” with the benefit being provided at the date the credit card is used (and not when the credit card bill is settled).
Revenue recognise that errors can occur in payroll. Therefore, it is possible to make a “technical” or “standard” correction to your payroll submission and this can be facilitated either through the payroll software or via ROS.
“In period” corrections
If a correction is required, for example, where incorrect details were included on a monthly PSR, there is scope to make an amendment in advance of the return due date i.e. 14 days after the end of the following month. Therefore, the best-case scenario is that employers make any required corrections in advance of this date in order to avoid potential interest and penalties.
The P30 has been replaced by monthly Statements of Account which are statutory returns. Revenue will issue these based on the PSR received by the fifth day of the month following the end of a payroll month. This sets out the taxes due for the previous month. If an employer does not accept/amend the monthly statement by the 14th of the month, Revenue will deem the Statement of Account to have been accepted.
Employers should therefore, exercise care and caution in reviewing their statement of account to ensure it is correct. If errors or omissions are identified, employers have the opportunity to correct them before the due date of the return. Any valid corrections submitted by an employer will update the financial totals once the submission is processed and will be shown in a revised Statement of Account which will replace the original submission.
If no amendments or corrections are made to the Statement before the due date, the Statement will automatically become your statutory return for the period and Revenue will deem this to be the correct return.
“Out of period” corrections
A correction after the month is closed off or signed off date will be seen as a change to a statutory declaration and a revised return will issue for that period. Therefore, interest and penalties may apply. Amendments to prior periods should only arise to correct exceptional issues.
Employers should take the time to review any issues with their RTR administration to date, make the necessary corrections and implement process improvements for the future. Revenue have been quite lenient so far and have certainly sought to work with employers to assist them as they get to grips with the new procedures.
However, more recently it has now become apparent that Revenue expect employers to have grasped RTR and be fully operationally compliant. If interest/penalties and increasing the risk of a PAYE audit are to be avoided, any RTR review should ensure that sound practices and procedures are adopted for the future.
Should you have any questions on Real Time Reporting or any other PAYE compliance matters, please contact Claire Davey, Head of PAYE and Personal Tax Compliance, or one of the People Services compliance team.