What Contractors need to know about PAYE Modernisation

So, you may have heard lots about PAYE Modernisation but what does it mean for you as a contractor?

The good news is not much is really going to change. In essence, PAYE Modernisation is just real time reporting of payroll information to Revenue. With the current system, payroll information is submitted to Revenue at the end of the year (i.e. through a P35 Return) or when an employee ceases employment (i.e. through a Form P45).

From 1 January 2019, payroll details will be submitted to Revenue every time you get paid, in real time. Due to this real time reporting system, P45s and P60s will no longer be issued to you when you cease employment or at the end of each tax year. 

Why are they changing the system?

Simple – real time reporting gives better visibility to Revenue and is a superior system for collecting taxes. Payroll taxes account for a large portion of income for the Exchequer and Revenue would like better visibility over its collection.  A very similar system was introduced in the UK in 2013 and it works well, for the Exchequer.

What are the implications for me as a contractor?

If you submit your expenses and invoice requests on time little will change for you. 

From 1 January, it will not be possible to make amendments to payroll.  If expenses are submitted late, they must be included in the following payment. 

In addition, the responsibility to ensure Revenue have the correct information on their file’s rests with you. This can be done through your MyAccount.  If you do not have one of these, set one up as soon as possible.

A MyAccount allows you to check if you have the correct tax credits and bands. If you are unsure of anything, please contact Fenero and we can advise accordingly.

Unfortunately, Fenero cannot set up your MyAccount however we are on hand to assist if you have any questions.

You may like: Maximising tax relief on foreign travel

What do I need to do?

  1. Register for a MyAccount / Login to your MyAccount
  2. Check and review your tax credits

What tax credits should I get?

In general, a Single Person should have the following tax credits:
 

Single Person Tax Credit

PAYE Tax Credit

Earned Income Tax Credit

Total

Umbrella Employee €1,650 €1,650 €3,300
Umbrella Director €1,650 €1,350 €3,000

A married individual may have an additional €1,650 to the above, if they have the Married Couple Tax Credit.

A full list of tax credits can be found on Revenues website here. If you are unsure please get in touch with us.

For individuals new to contracting in Ireland, you should obtain a PPS Number as soon as possible to avoid temporary harsh deduction of emergency taxes.

Expected Common Pitfalls

The expected pitfalls for contractors are as follows:

1. Not submitting your expenses in time to be included in payroll
This will result in a delayed payment of expenses as payroll cannot be amended from January 2019 anymore. To ensure you are receiving tax benefits from expenses at the earliest opportunity, you must submit your expenses at least 48 hours before your payment is expected to be processed.

2. Invoice requests being submitted late
This will result in two invoices being processed in the same pay period and could impact your number of insurable weeks for PRSI purposes. 

3. Umbrella Directors being allocated the PAYE Tax Credit instead of the Earned Income Tax Credit by Revenue.
This will result in a €300 liability when your income tax return is prepared in 2020. To avoid this, use your MyAccount with Revenue to ensure you have the correct tax credits assigned to you.

4. Contractors incorrectly being allocated the Medical Insurance Tax Credit by Revenue.
This is a common issue. When left uncorrected, it will result in approximately a €400 tax liability for you to pay when your income tax return is prepared in 2020. Basically, this is because you have received the tax relief in error and Revenue will ask you to repay it. The best thing to do is ensure it’s not incorrectly allocated to you in the first place. Again, this can be done via MyAccount.

If you are unsure of your tax credit entitlement, please contact the Fenero Team for guidance and advice.

In Summary

PAYE Modernisation means contractors will have more control over your payroll information and can view live payroll data on your MyAccount. To avoid any problems or errors, it’s vital that you check Revenue have the correct information about you on file – you can do this via your MyAccount. 

For most contractors, so long as you submit your timesheets, invoice requests and expenses on time you should not notice any difference to how your payroll is processed.

If you have any questions – big or small – get in touch with Team Fenero. We’re always here to guide and advice!

About David O Reilly

David is Managing Director and Head Tax Advisor at Fenero. A Chartered Tax Advisor with the Irish Taxation Institute and a Fellow of the Association of Chartered Certified Accountants, David is also a Xero Certified Advisor.

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