Many years ago the government of the day realised that the most cost effective way to collect taxes due was to legislate and oblige employers to do the job for them – Pay As You Earn (PAYE) was born!
PAYE has an impact for both employers and employees, and we have covered some of the pitfalls to avoid in this page.
PAYE – Issues for Employers and Employees.
If you employ staff, you have obligations to the Revenue Commissioners. If you ignore these obligations, penalties and interest will soon be added to your employment costs!
Most penalties arise if you either: miss certain statutory deadlines for remitting tax and Pay Related Social Insurance (PRSI) you have deducted from your employees, or are late submitting returns to the Revenue Commissioners.Unfortunately ignorance is not bliss – make a late payment or forget to send off a particular return and you will be penalised.A reduction in the frequency of paye returns and payments for smaller businesses was introduced during 2006 and 2007. These simplified arrangements are being further extended to include newly eligible customers from 1 January 2010.
Businesses making total annual PAYE/PRSI payments of up to €28,800 became eligible to make their payments on a quarterly rather than monthly basis;
The benefits for qualifying businesses are:
Improved cashflow by only having to make payments at the end of each quarter, 4 monthly period or 6 monthly period as appropriate.
If you provide employees with benefits, for example company cars and health insurance; be sure to watch out for the following:
Identification is difficult – sometimes seemingly unrelated expenditure can be classified as a benefit, for example excessive staff entertaining.
Benefits attract their own PRSI charge which has to be paid by employers each year.
Benefits have to be declared to the Revenue Commissioners on specific returns which must be submitted on time to avoid penalties and interest.
Employers – other points of interest.
Some Small businesses are able to pay their deductions quarterly rather than monthly – this can help with cash flow especially for new ventures.
Employers have to make their own PRSI contributions based on salary levels. This is added to tax and employees PRSI deductions when paid to the Revenue Commissioners each month/quarter.
Employees – make sure you only pay what you owe!
The tax deducted from your salary is calculated by taxing your salary at the appropriate rates and then deducting your allowances. Most payroll systems are quite adept at calculating the tax due, but they rely on the tax office to issue a tax credit certificate to quantify your annual tax credits – this is the area where mistakes can be made and your tax bill increased unnecessarily.
Basically the higher your tax credit the less tax you will pay, and vice versa. A few common errors are:
Employers are sometimes slow in sending in details to the tax office when new employees start. This can delay the issue of a tax credit certificate resulting in excessive tax deductions. Employees who change their company cars for lower taxed models, or indeed stop using a company car will continue to be taxed based on last tax years information, unless the tax office is informed.The tax office will sometimes seek to recover unpaid tax in earlier years by reducing your tax credit in the current year. This deduction should always be checked to make sure the arrangement does not duplicate other payments that you may have made directly to the Revenue Commissioners.
The key to ensuring that your tax credit are correct is to make sure that changes are notified to the tax office quickly.
How we can help?
We are trained to advise our clients regarding all aspects of payroll preparation and compliance. In fact we can offer a complete payroll service if you would like to outsource this time-consuming activity. We can also provide human resource consulting and advise on recruiting and retaining staff. If you would like to discuss PAYE or any of the issues raised on this website, do get in touch. If you need a full payroll service then we are here to assist.
Call us now on 01 8486816 to discuss your PAYE obligations or fill out our contact form and we will call you back.