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While most people impacted by the changes of Real-time reporting for PAYE (RTR) seem generally happy with the way it has bedded down to date, the scale of the change was bound to result in employers experiencing teething problems while getting to grips with the new procedures, writes Claire Davey, Head of PAYE and Personal Tax Compliance.

This article is the second of a two-part review, which aims to focus on some of the issues affecting cross-border employees, individuals inbound to Ireland and those outbound from Ireland.

Mixing the complex world of expatriate tax with new, more stringent payroll procedures was always going to be a huge challenge. To be fair, Revenue were alive to the difficulties facing employers with mobile employees and did include some content in their presentations to stakeholders in the lead up to the introduction of RTR.

What follows is a summary of the main challenges that can arise in this area, including recommended procedures to be followed by employers in order to meet their RTR obligations.

Inbound employees

Shadow payroll

A major challenge for Irish based employers is the common scenario where an employee is seconded by a non-Irish employer to “work for” an Irish group company. In such situations, the employee remains employed and paid in their home country during their secondment to Ireland.

For short-term business visitors, it is not always immediately apparent whether a PAYE obligation arises in respect of their presence in Ireland. There may be exemptions available to relieve an employer from the obligation to operate Irish PAYE under a Double Taxation Agreement (DTA), an analysis of which is outside the scope of this article.

As a first step the employer should assess whether the secondee is within the Irish PAYE system – whilst each case should be considered on its own merits, an employee can come within the scope of Irish PAYE when they work as few as 30 days in Ireland.

This leaves the Irish host employer with the challenge of operating a “shadow” payroll on a real time basis for an employee who is paid by a foreign group company, possibly on a different pay date. Sourcing the payroll data internally can be a real problem in these cases.

So how does this all fit with the new world of RTR?

Helpfully, Revenue listened to the various concerns raised by stakeholders during the run up to RTR with regard to expatriate payrolls and provided much needed clarity and guidance in this complex area.

In broad terms, Revenue have confirmed that that while it is necessary for shadow payrolls to comply with the new RTR regime, a “relaxation” to the new rules will apply for shadow payroll employees.

Payroll submissions for expatriate shadow payroll cases can be aligned with the Irish employer’s payment dates and a “best estimate” may be used in the first instance and included in the payroll submission. Revenue then allow an opportunity to provide the accurate data for the pay period by way of a correction in the next payroll submission.

Special Assignee Relief Program (SARP)

While Ireland’s main expatriate concession, Special Assignee Relief Program (SARP), may be granted through the PAYE system or via an individual’s personal tax return, unfortunately, there is no capability within payroll software to calculate the relief due on a monthly basis.

Therefore, an employer is required to manually calculate and input the SARP figures into the payroll software by essentially establishing the earnings in excess of €6,250 per month and exempting 30% of this excess from PAYE.

With effect from 2020, Revenue introduced a €1 million earnings cap for all SARP claimants (the cap was introduced from 1 January 2019 for those whose first year of claim was 2019). The linear approach previously applied is therefore disrupted where the cap is exceeded. There is no Revenue guidance on how to deal with this and so a practical approach is recommended to ensure the correct relief is granted.

Given the operation of SARP through the PAYE system can be quite complex, and to ensure relief claimed is calculated correctly, assistance from a tax professional is recommended, particularly where an international assignee is tax equalised.

Outbound assignees

PAYE Exclusion Orders (PEO)

Where an individual employed by the Irish company goes on a long-term assignment to work for a foreign group company, depending on certain criteria, it is likely that the individual will be regarded as non-resident for Irish tax purposes. Provided the employee performs all of his employment duties outside of Ireland, an income tax/USC liability should not arise on the employment income for the duration of the assignment.

In such circumstances, it is possible to apply to Revenue for a PEO such that it is not necessary to withhold Irish PAYE and USC during the assignment.

So how does a PEO interact with the new RTR system?

Where a PEO issued in December indicates it is effective from 1 January of the same year, provided the PEO marker is ticked within the payroll software, the employer can refund the year to date PAYE/USC deductions (January - November) in the December payroll.

However, it is not possible to effect refunds for earlier periods where the PEO commences on a date after 1st January. In such instances, only the employment income earned after the PEO commencement date can be made without deduction of PAYE/USC. For example, where a PEO is effective 1 Feb but does not issue to the employer until 1 April, the PEO is applied through payroll from 1 April and any refund of taxes overpaid in February and March will be refunded after the end of the tax year.

Interaction of a PEO where an employee is working abroad but still subject to Irish PRSI

Many outbound assignees on temporary international assignments with a PEO in place will remain within the scope of the Irish PRSI system. In such cases a “notional” pay value, including certain assignment benefits which may not be readily available, should be inputted to account for the PRSI contributions.

Complications can also arise in practice where the employee receives a bonus payment which is liable to Irish PAYE in full. RTR does not facilitate such scenarios, and so a practical solution to process the bonus payment via an “out of cycle” run (temporarily removing the PEO marker from the employee’s records). This will allow for all the taxes to be applied in addition to the bonus payment.

There is no substitute for professional advice in these complex matters to ensure RTR compliance.

Foreign tax credits

There are cases where individuals go abroad to work but remain Irish tax resident and remain subject to tax both in Ireland (by reason of residence) and in the jurisdiction where they are performing duties of their employment.

In such scenarios, relief from double taxation is usually provided by crediting the foreign tax against the Irish tax due on the doubly taxed income. The process for allowing credit through the PAYE system for non-refundable foreign tax was introduced in 2015 and is outlined in Revenue’s e-brief 119/2015.

Under the guidance, the credit may be granted by increasing the individuals tax credits as specified on the Revenue Payroll Notification (RPN). However, practical difficulties can arise in terms of timing the RPN adjustment with the requirement to declare the doubly taxed income, and also technical difficulties exist with the calculation of the FTC.

Additional Indicators / Markers

Under RTR, employers are required to “check the box” to identify to Revenue certain types of expatriate employees/directors or to signal an exemption from PAYE. 

Shadow payroll indicator

As outlined earlier in this article, some employers are required to operate a “shadow payroll” for certain expatriate employees.

In such cases, in order to identify inbound expatriates’ employees to Revenue, employers are required to set a shadow payroll marker to “true” either on ROS or through the payroll software.

PAYE Exclusion Order (PEO) indicator

Once a PEO has been granted for an employee, an employer is not required to request an RPN. However, employers are advised that a Payroll Submission Request (PSR) must include confirmation that a PEO is being availed of.  An “Exclusion Order” specific checkbox indicator either on ROS or through the payroll software should be checked. 

Conclusion

There are many pitfalls when dealing with expatriate cases and part of the challenge is recognising such situations in a timely manner so that compliance with PAYE regulations and RTR requirements can be achieved.

To assist employers in meeting their PAYE obligations, employers should maintain an accurate and up to date record of globally mobile employees within the organisation at all times.

Clear lines of communication between all the various stakeholders within the HR, finance and payroll functions is key to ensuring data is captured in an accurate and timely manner.

In these challenging times, employers should certainly consider where improvements to their internal PAYE reporting processes for mobile employees are required in order to achieve best practice.

Get in touch

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.

Further information