From 1 January 2019 Revenue will be rolling out a new real-time system which will completely change the way PAYE currently operates. The importance of understanding and correctly adopting the new system cannot be underestimated as non-compliance or continuous errors will likely result in Revenue intervention.
What is the aim of the new system?
- Improve the streamlining of current business processes
- Reduce the administrative burden currently experienced by employers to meet their PAYE reporting obligations.
- Ensure Revenue, employers and employees have the most accurate, up to date information relating to pay and statutory payroll deductions so that the right amount of tax is being deducted at the right time from the right employees.
What is changing?
- Employers will have to report payroll information to Revenue on or before making a payment to an employee.
- P60s, P45s, P30s, P35s and End of Year Returns will be abolished.
- The current tax credit certificate (P2C) is being replaced by a Revenue Payroll Notification (RPN) which will provide employers with all necessary information regarding tax credits and cut-off.
- An “Employment Identifier” will be used to distinguish between multiple employments of an employee with the same employer and different periods of employment with the same employer.
- An “Employer Reference Number” must be reported to Revenue for every payment made to an employee who has not provided a PPSN.
- Revenue will issue monthly statements to employers which will show a summary of total liability.
Getting PAYE Modernisation ready!
Employers should: –
- Register all their employees with Revenue
- Have the right PPS numbers for all employees
- Have up to date tax credit certificates for all employees
- Complete the P45 process for any employees no longer employed with them
- Have adequate controls in place to ensure benefits/notional pay are being accurately calculated during the year
- Have their ROS digital certificate ready for the 1 January 2019.
Anything else to note?
- It is not recommended to have a net pay arrangement with employees. We have no option but to use the credits and cut off provided to us by Revenue, and therefore employers with net pay arrangements can be exposed to an additional liability due to reallocation of credits by the employee.
- Grossing up of drawings to repay overdrawn directors’ loans will result in us having to amend prior periods rather than filing a supplementary return (which previously was the option selected) and will inevitably increase the risk of interest and penalties on late filing plus will draw attention to the BIK that was deemed to be provided to the director when they received the interest free loan.
If you have any queries or concerns with respect to the new PAYE Modernisation system, or should you require assistance with your payroll, then please call us on 021-4810035.
Equitable Execution is a process whereby a judgement creditor can apply to the court to have a receiver appointed over an asset (or income from the asset) that is not capable of being caught by another form of enforcement. The remedy has not been explored too much but can provide an economic route for recovery where a creditor believes that a debtor has some valuable asset or income that can be enforced over. The general view up to recently has been as follows: –
- The asset has to be an equitable interest; as opposed to a legal interest.
- A receiver could only be appointed over an equitable interest such as a stream of income that may not be due at the time.
There have been some recent decisions which have improved the options for the procedure and have also extended its scope to include legal interests.
The relevant case law in this country has been conservative but one case in recent years has given indications that equitable execution could be a route to consider for creditors with a judgement.
The case involved is known as “ACC Loan Management V Rickard” and was initially heard in 2011 when ACC obtained an order for equitable execution over a single farm payment entitlement payable to the Rickards. In early 2015, the single farm payment structure was changed and the new entitlement, known as the Basic Farm Payment, was announced. Because of the change in the entitlement, ACC applied to court for confirmation that the basic farm payment could continue to be the subject of equitable execution and in mid-2015, the High Court confirmed that the equitable execution could continue. The Rickards appealed to the Court of Appeal and the Court of Appeal found in favour of ACC Loan Management in its attempts to maintain the appoint of a receiver over basic farm payments.
A key finding was that the Court of Appeal found that although the Basic Farm Payment was a legal interest, it was an entitlement over which a receiver could be appointed. The interest did not have to be equitable only. The decision very much followed a line identified in a UK case (Munib Masri/Consolidated Contractors International Company Sal and Consolidated Contractors (Oil & Gas) SAL  EWCA Civ 3030) where the decision to appoint a receiver by equitable execution over a share of income stream from an oil field in Yemen was upheld by the UK Court of Appeal.
One of the judges involved in hearing the case referred to the Masri judgement extensively and Finlay Geoghegan J agreed “both with the analysis and conclusion, and similarly am of the view that in 2015 or 2017 there is no reason why the Court should not exercise a power to appoint a receiver by way of equitable execution over future receipts from a defined asset.”.
The Masri case looked at the appointment of a receiver by equitable execution – over an asset or income derived from that asset based overseas. The respondents/defendants had tried to claim that the UK Court could not appoint a receiver by equitable execution to an overseas asset. The UK Court of Appeal decided that it could do so and that if it was permissible in the foreign jurisdiction for the judgement debtor to comply with the Receiver’s requests then the debtor should.
Following on that interpretation, it seems that a UK Court would likely be supportive of an equitable execution over income from legal interests in the UK.
Historically, equitable execution has not been allowed where an asset could be recovered under some other debt collection process. In a Supreme Court decision from 1994 (Irish National Bank V Gallagher), Irish National Bank applied to appoint a receiver by equitable execution over a herd of cattle, but the Court refused because the bank had the ability to enforce its judgement by getting the sheriff to execute over the herd. The bank had not taken that step.
Another leading case is Honnibal V Cunningham (High Court) where some key points were made: –
- There is a duty on the part of the plaintiff creditors to give full information where the application is made on an ex parte basis
- The judgement creditor can pursue more than one route of recovery
- The equitable remedy is only available where the judgment debtor has only an [equitable] interest in property against which the judgment creditor seeks recourse
Prior to the Court of Appeal decision in the Rickard case, attempts to appoint a receiver by equitable execution over:
- A pension
- Rental income from apartments
- Emoluments for a statutory position
had not succeeded although there had been successful appointments over single farm payments as well as contractual amounts due to a debtor from a local authority. Some of these routes may be more likely now than in the past.
In the Rickard case, some practical guidance points were helpfully set out in the second judgement given by Hedigan J: –
- The court has jurisdiction to appoint a receiver to receive future debts as well as debts due or accruing.
- A receiver may not be appointed over future wages or salary.
- The court must consider whether it is just and convenient to do so. In this respect, the court should have regard to the amount of the debt, the amount that may probably be obtained by the receiver and the costs of the appointment of a receiver.
- Are there special circumstances in the particular case that make the usual process of execution or attachment unavailable?
- Is there some hindrance arising from the nature of the property which prevents the judgment creditor from obtaining execution at law which the appointment of a receiver can overcome?
- There should be no way of getting at the fund other than by the appointment of a receiver.
- It is not execution that is granted but equitable relief where there is no remedy by execution at law.
- The remedy is discretionary.
On the basis of the above it seems likely that any form of asset (or the income derived from it) not capable of being attached in some way is amenable to equitable execution.
The Rickard case has not gone away. An appeal was successfully listed before the Supreme Court and that judgement is expected before Christmas although possibly after the second Basic Farm Payment has been issued. This judgement could change in a material way the ability of creditors to recover from debtors where they have a judgement. Equally, the Supreme Court may rein in the room for enforcement created by the High Court and Court of Appeal.
A key point is the ability of equitable receivership to bite on assets and businesses that might not always be reflected on a balance sheet, particularly where a business generates significant cash flow which funds lifestyles.
Director of Insolvency and Corporate Restructuring
Redundancy may arise in certain circumstances, such as when the employer ceases to carry on the business for which the employee was employed. It is important to note that when a redundancy occurs that it is the job that is being made redundant and not the employee. That being the case an employer cannot just “legally” dismiss an employee by reason of redundancy. If an employer were to make an employee redundant and then employ a new employee to carry out the same role then this would be deemed to be an unfair dismissal of the first employee.
Where there are a number of employees carrying out the same role and the employer needs to reduce their workforce then the employer should be mindful of the redundancy selection process. If the employer deviates from an agreed procedure or a procedure previously applied when deciding who is to be made redundant, then this may be deemed to be an unfair dismissal.
Before making any employee redundant the employer should consult with the employees at risk of the redundancy. An employer should also consider if there are any options other than redundancy, for example, if the decision to make someone redundant is on the basis of economics, the employer should consider suggestions by employees for pay cuts or for job sharing.
With regard to redundancy payments the statutory minimum is 2 weeks’ pay for each completed year of service and an extra week, all capped at €600 per week. In order for an employee to be entitled to the statutory redundancy payment they must have at least 2 years continuous employment with the employer.
The statutory lump sum is tax free. Any payment above the lump sum (known as an ex-gratia payment) is taxable subject to any tax-free entitlements.
The Low Pay Commission’s recommendation to increase the national minimum wage has recently been accepted by the Cabinet. The Low Pay Commission was established in 2015 by the Fine Gael/Labour coalition to advise the Government on the appropriate rate for the national minimum wage. The recently accepted recommendation will see the Irish National Minimum Wage increase from €9.55 to €9.80 per hour. The increase is expected to be effective from January 2019.
For the purposes of the National Minimum Wage Act, the following are regarded as wages: –
- normal basic pay
- shift allowances or other similar payments
- any fee, bonus or commission
- any holiday, sick or maternity pay
- any other return or payment for work (whether made under the contract of employment or otherwise),
- any sum payable to an employee in lieu of notice of termination of employment.
It should be noted that in some sectors minimum wage rates differ and these are set out in Employment Regulation Orders (EROs) made by Joint Labour Committees. Different sectors include the security industry and contract cleaners.
When it comes to paying employees, employers must be mindful of a number of factors. Firstly, employees are entitled to receive a pay slip for each payment made. The pay slip must show the gross wage and details of all deductions. Should an employer be subject to an inspection by the Workplace Relations Commission the employer must produce evidence that employees are furnished with pay slips.
Employers should note that they can only lawfully make deductions from an employee’s wage in certain circumstances such as:
- It is required by law, e.g. PAYE and PRSI
- It is provided for in the contract of employment, for example occupational pension contributions.
- It has been made with the employee’s written consent
- It is to recover an overpayment of wages or expenses
- It is required by a court order
- It arises due to the employee being on strike
If an employer wants to make a deduction to an employee’s wage due to an act or omission of the employee which resulted in costs or a loss to the employer (e.g. damage to company property or till shortages) then the following applies:
- It must be allowed for in the contract of employment;
- The employee must be given at least one weeks written notice of the deduction;
- The deduction is made within 6 months of the loss/costs incurring
- The amount of the deduction must be fair and reasonable and must not exceed the loss or cost to the employer.
Under Irish law employees are entitled to 4 working weeks paid time off work as a minimum. This entitlement is calculated pro-rated based on the number of hours the employee works and so an employee who works part-time hours may not receive the full 20 days. Similarly, employees who commence employment during the Company’s holiday year will only be entitled to holiday leave on a pro-rata basis.
Annual leave is a statutory entitlement and failure to allow an employee time off could result in compensation being awarded to the employee. While an employer may choose when an employee can take their annual leave, certain conditions apply and an employer must take account of employees family responsibilities as well as their right to rest and recreation. Employees who work 8 months in a year are entitled to an unbroken 2 week holiday, subject to any agreement in place.
Employers should keep a record of all annual leave dates taken and it is recommended that all employers have in place an Annual Leave policy. Examples of what the policy should outline are as follows: –
- Steps on how an employee requests annual leave.
- Any conditions relating to annual leave e.g. no more than 2 consecutive weeks at any one time, notice for holiday requests
- Any designated annual leave dates e.g. if the Company closes over the Christmas period
- Conditions relating to the carrying-over of annual leave to the next holiday year
An employee’s annual leave entitlement should be set out in their Contract of Employment. It is advisable for all employers to also set in the employment contract that if, upon termination, the paid holidays already taken exceed the paid holiday entitlement at the date of termination, the Company has the right to deduct the excess holiday pay from the employee’s final payment. In the absence of this clause any deduction may be deemed unlawful and an employee may bring a claim against the Company.
Since August 2015 statutory annual leave continues to accumulate while an employee is absent on certified sick leave. This means that employees on long term sick leave can avail of untaken annual leave. However, this does not last indefinitely and the entitlement is only available for 15 months from the end of the holiday year in which an employee was absent on certified sick leave.
Revenue are in the process of reforming the current PAYE system. From 1 January 2019 Revenue will be rolling out the new real-time system. Employers, agents and payroll providers will need to review their business processes and practices so they meet the new requirements.
The aim of PAYE modernisation is to:
- Improve the streamlining of current business processes
- Reduce the administrative burden currently experienced by employers to meet their PAYE reporting obligations.
- Ensure Revenue, employers and employees have the most accurate, up to date information relating to pay and statutory payroll deductions
With the new system employees will be able to log into their Revenue account and view information submitted by their employer. Other changes will include payroll software automatically updating changes to P2c files regarding tax credits and cut-off, and automatically uploading data to Revenue. The new system will also see the abolition of P60s, P45s, P30s and P35 forms. Revenue are also reviewing options to deal with the taxation of Illness Benefit which would remove the obligation for an employer to tax it through payroll.
It will be important for employers to ensure payroll is updated every week or month as the file will be automatically uploaded to Revenue, and non-compliance or continues errors will likely result in Revenue intervention.
To prepare for PAYE modernisation, employers should ensure they have registered all of their employees, received an up to date Tax Credit Certificate (P2C) for each employee and check they have the correct PPSN for all employees. Employers are required to submit a list of employees to Revenue through the Revenue Online Service (ROS). Revenue have published a manual to provide guidance on how to complete and submit the employee list.