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PAYE Modernisation: connecting the real time regime

PAYE Modernisation and the need for connectivity

January payday.

Possibly the most eagerly anticipated date of the new year for employees. Probably the first meaningful engagement with Revenue’s real-time reporting for many finance teams. ‘PAYE modernisation’ became an operational reality on 1 January 2019. Month-end looms as the litmus test of the new regime for everyone running monthly payrolls.

The past is a foreign country…

PAYE was introduced to Ireland on 6 October 1960. In 1960, JFK became president of the United States, The Country Girls was published and promptly banned (and burned), Lemass was Taoiseach, DeValera was President. A LOT of water has passed under the bridge since PAYE’s debut. Revenue regards real-time reporting (RTR) as the most meaningful overhaul of PAYE to date. RTR requires employers to report their employees’ pay and deductions as they are paid, rather than at year end. The P forms – P45, P30, P35, P60- have become historical artefacts and online portals and digital certs are de rigueur. To borrow a phrase from Dorothy, we’re not in Kansas anymore.

They do things differently there

The belief that “tax reporting should reflect the technology available” is central to advances being made in the UK, Australia and now Ireland. Nonetheless, while preparing for the overhaul, Revenue acknowledged that many small businesses still operate manual, paper-based or spreadsheet payrolls. Reflecting PwC Ireland’s contention that “tax authorities have an expectation that taxpayers are also investing in technology”, these paper-based employers were essentially pointed in one of two directions:
(i) Payroll software
(ii) Revenue Online Service (ROS)
Due to the cloud based nature of most payroll software and the requirement for such software to ‘talk to’ Revenue, both of these options assume the presence of a robust Internet connection.

Technical necessities

The mechanics of RTR are wholly underpinned by the presumption of connectivity. As PwC put it, “RTR would not be feasible without appropriate technology, both for employers and for Revenue.” Let’s take a look at the steps involved in a single, straightforward payroll:

1. Every payroll run begins with a download of the Revenue Payroll Notification (RPN) for each payee.
2. Employers must upload a Payroll Submission to Revenue as or before payment is made to employees.
3. Revenue issues monthly statements, through ROS, summarising Payroll Submissions.
4. Payment of all amounts due to the Collector-General are generally made through ROS.

Disconnect with reality

PAYE Modernisation glossed over businesses who cannot secure adequate connectivity. These businesses do exist in a country where the long wait for broadband has been summarised by Silicon Republic as “more than 18 years since broadband arrived in Ireland, seven years since the NBP [National Broadband Plan] was first drawn up, two months since the Smyth report and almost a month into 2019.

Of course, the majority of Irish companies do have a data connection. But again, RTR allows little leeway for the reality that connections do go down. Network outages were already costly for companies in terms of employee productivity and missed business opportunities. Now the possibility of PAYE non-compliance and all that entails can be added to that list.

Non-compliance: costs and penalties

PAYE is not a ‘best-effort’ ask of employers. Compliance is mandatory and, as was the case pre-2019, employers who fail to operate PAYE correctly may be subject to a €4,000 penalty. Punitive fines aside, consider that, offline, an employer will be unable to amend Revenue’s monthly statement of Payroll Submissions. Silence will speak and the statement will be deemed the return. Failure to pay amounts due to the Collector General by the 23rd of the month will incur interest. Employees’ pay packets are also vulnerable under the new system. If an RPN for an employee cannot be retrieved through ROS or payroll software, the employee must be treated on an emergency basis. RTR has already been rolled out for individuals paid weekly and early reports pointed to over 10,000 employees left with less than half their pay when emergency tax was applied.

Persistent technology failure

The prospect of technical trouble has not escaped Revenue. The Finance Act 2017 enumerates the exceptional circumstances when penalties will not apply. The circumstances envisaged include a ‘persistent technology systems failure’ whereby:
(i) an employer is unable to validate the most recent revenue payroll notification for an employee or (ii) to notify the Revenue Commissioners

However, The Employers’ Guide to PAYE Part 42-04-35A clarifies ‘persistent technology failure’ as a serious outage to either the employer’s systems or to Revenue’s systems brought about by a significant weather event or other major loss of power. Should another Hurricane Ophelia reach our shores we assume all will be forgiven. Not so, we suspect in the case isolated incidents and outages caused by network maintenance or faults.

Protecting your business with resilient connectivity

Employers can avoid compliance issues by adopting failover technology to add resilience to their network. A resilient business using autofailover technology will have two diverse Internet connections. When an outage strikes, all connected systems and devices switch quickly and smoothly from one circuit to the other. This allows the business to operate normally throughout an outage.

Traditionally failover technology was the preserve of large enterprises, coming at a price point that was cost-prohibitive to more modest IT budgets. Technology has happily advanced. The engineers at Ripplecom created Orion, a cost effective autofailover. Orion’s ability to keep companies connected even in a major network outage led to its selection as the IT Project of the Year for the SME Sector at the 2018 Tech Excellence Awards. Critically, Orion uses the same IP address for both network connections. This is key for businesses operating Electronic Fund Transfers (EFTs) or processing payments. A change in IP raises the spectre of fraud and transfers and payment may be locked down for security. Orion eliminates this issue.

Brave new world

Ultimately PAYE modernisation promises to deliver more accurate information and streamlined process for both employers and employees. It firmly places an onus on Irish employers to get connected and stay connected. The nature of modern payrolls and online banking mean that an employer may struggle to pay employees at all in a network outage, never mind in full compliance with RTR. In this new reality, investing in resilience, in the shape of a failover like Orion by Ripplecom, is a clear path to keeping Revenue, employees and ultimately a business happy.

published on 23 January 2019

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Author Bio

John McDonnell B.Comm. (Hons), F.C.A. has over 30 years’ experience, working primarily in the high-tech sector. John is a founding director of Ripplecom, a telecommunications company specialising in challenging connections and resilient business continuity.