Finance Bill - Employment taxes

Oct 23, 2017

The Bill provides the detail of PAYE Modernisation which essentially means the introduction of Real Time Reporting from January 2019. This represents the most significant reform to the PAYE system since it was introduced in 1960.   A change to the basis of taxing employment income and a new provision to deal with the ‘grossing up’ of income not correctly subject to PAYE are also included. 

Real Time Reporting

This means that employers will update and report their employees’ pay and deductions to Revenue as they are being paid i.e. in real time.  Revenue will use the up-to-date payroll information in its compliance activities and risk analysis according to supporting documents to the Bill. 

Schedule 1 of the Bill tells us that from 1 January 2019 the following will be the main features of the real time PAYE system:

  • The due date where an employer pays and files online (via ROS) is the 24th of the following month, currently it is the 23rd.  Otherwise, the due date is the 15th day of the following month, currently it is the 14th.  Annual returns are replaced with these monthly returns.
  • Revenue will issue a revenue payroll notification or “RPN” which essentially will contain the same information as the current P2C.
  • The submission date for the small and irregular benefits return has been brought forward by 23 days (from 15 February to 23 January)
  • In the case of non-operation of PAYE by the employer, Revenue will raise an assessment rather than raising an estimate.
  • Provisions are included for exceptional circumstances outlining the obligations on an employer in the event of a persistent technology systems failure.

Change in tax treatment

Prior to the introduction of Real Time Reporting in January 2019, the Bill provides for changes to the basis of assessment of Schedule E income, which is the tax treatment of employment income.  Currently such income is taxed, under income tax rules, in the year in which it is earned, irrespective of when it is paid.  The Bill tells us that employment income will be taxed on a receipts basis, which is when it is received by the individual. This change will apply to Schedule E income from 1 January 2018.   Transitional arrangements are included for income which may have been taxed in 2017 on an earnings basis but are then received in 2018.  Practically this will have the greatest impact on bonus payments made in 2018 which relate to employment duties performed in 2017 and therefore the income will have been “earned” in 2017. 

Unpaid income tax

Where PAYE is not correctly operated by an employer a new provision (new section 986A TCA 1997) will treat the payments made to employee as net of any tax amounts.  This applies from 1 January 2018.