Digital tax revolution fast approaching for small business owners

Revenue’s introduction of ‘PAYE modernisation’ spells big changes for small business owners.

A minimum of 208,000 employers across the country face upheaval and potential fines as a raft of new ‘real time technology’ changes come on stream at the Revenue Commissioners soon under a project called ‘PAYE Modernisation’. That’s not to mention the several hundred thousand sole traders across the country who are also being pushed online. 

To modernise their systems and transform tax administration, the Revenue Commissioners and indeed some other statutory bodies have been laying the foundations for a ‘Digital tax revolution’. These changes will see Irish businesses, much like their counterparts in the UK, move to a real- time, ‘digital’ tax system where manual form filling will be eradicated and replaced with a system of much more regular (from once a year to once a week potentially) interaction with Revenue. This brings a whole host of challenges particularly to those with poor digital skills or those who find themselves in areas with poor broadband. 

The  first major, but not very publicised, project is already fast approaching its launch date. It is called ‘PAYE Modernisation’ and it will relate to those who employ staff- no matter how many.

From January 2019, under this new system, employers will have to report all wage payments to the taxman using a new Real Time Information (RTI) system. This will effectively replace the old system of making payments every month/quarter and then filing just one detailed return each February which often resulted in employers ‘balancing out’ any underpayments of PAYE. What’s more, record maintenance will have to be done via Revenue-compatible software only. Paper-based or excel record keeping, still surprisingly common, will no longer be feasible. The changes are mandatory, and businesses will face heavy fines for non-compliance. 

This effectively means that business owners have just one year to prepare for the change in their systems and to purchase payroll software that will prepare and submit either monthly or weekly, accurate returns. 

Those who don’t employ staff will not escape this push to digital as other subtle changes are happening. For example, Revenue will now only accept applications for tax registration via their Revenue Online Services (ROS) and the clear majority of tax returns must be completed via ROS with generous filing deadline extensions for those who file online.

In fact, even the way Revenue engage with clients has changed dramatically with many local offices across the country ceasing the tradition of offering a walk-in service and moving, much like the banks to ‘appointment only’ for dealing with taxpayers in person.

It is not just the Revenue who are in the push, since June 1st, 2017, limited companies, no matter how small, have had to engage with the CRO (the Companies Registration Office) through an online portal for their returns. 

With more change to come, the time is ripe to move away from manual/excel record keeping to an online based accounting software. That’s the view of Alison McGinley, managing director of TaxAssist Accountants a network of over 20 accountancy firms across Ireland servicing 5,500 clients. In fact, TaxAssist have recently signed an exclusive digital partnership deal with Surf Accounts, a Dublin-based online accounting firm to enable them to expand their digital offering to clients.

Speaking about this, Alison said: "We are seeing a pretty profound shift in how we engage with the authorities and that’s only going to continue. From what we know, Revenue will not be offering software to help SMEs with PAYE modernisation for example. Our clients will soon be moving from just one return a year to one a month or one a week - that’s a huge change. To cope with this change, we decided to partner with a technology firm who can offer our clients easy to use, best in class software. Surf Accounts fitted that bill and are Irish-owned into the bargain."

McGinley spoke of the experience of her colleagues in the UK where a system such as this was brought in back in 2012: "What happens in the UK has a habit of trickling down to Irish Revenue. An almost identical system for payroll was brought in by HMRC back in 2012. After that, they moved to launch another new system called ‘Making Tax digital’. MTD has caused uproar amongst SMEs and their advisors because it effectively means  moving to file four tax returns per year rather than the standard one. Whilst nothing like this has been explicitly flagged in Ireland just yet it’s safe to assume that an even bigger shift like this could be fast approaching." 

TaxAssist Accountants acknowledges these changes will involve retraining for business owners, but says there is then an opportunity too: "Moving away from excel or indeed manual records to a cloud-based system allows you to take advantage of automation. Ultimately, using software should speed you up and give you control to manage your business wherever you are."

Last updated: 5th December 2017