A PAYE modernisation project currently under way has implications for all employers. The changes, set out in Finance Act 2017, come into operation on 1 January 2019.  David O’Connor explains what you need to do to prepare for the new regime.

Revenue’s PAYE Modernisation project will introduce ‘real time’ payroll reporting from 1 January 2019. Under this new regime, employers must calculate employees’ pay and deductions and submit this information to Revenue as (or before) each payment is made. To prepare for the new system, employers will need to review their processes and ensure that correct PAYE procedures are being followed. Any changes that may be needed to comply with PAYE modernisation requirements should be implemented before the new regime commences.

What is changing?

Under the new system, a Revenue Payroll Notification (RPN) will replace the current Tax Deduction Card (P2C). From 1 January 2019, employers will have to request the most up to date RPN from Revenue before making payments to employees. Employers must notify Revenue of employee payments in real-time, submitting details of the amount being paid, the payment date, and the PAYE, USC, PRSI and LPT being deducted. Revenue will issue a month-end statement summarising the employer’s submissions made during the month. If no amendments are required, this Revenue statement will be deemed to be the employer’s monthly return. However, if the Revenue statement is incorrect, the employer will need to correct the payroll data and make another submission. Finally, on or before the due date of an income tax month, the employer must pay the Collector General the income tax due to be deducted in respect of that month.

Return and payment due dates

 While all employers will have to provide payroll information to Revenue on a monthly basis, some smaller employers using the ROS system may be able to make payments on a quarterly basis. Return and payment due dates are as follows:

 

Remitter Type Return Filing Frequency Return Due Date Payment Frequency Payment Due Date
Monthly Monthly 14 days after the end of the month Monthly 14 days after the end of the month (23 days for ROS users who file and pay online
Quarterly Monthly 14 days after the end of the month Quarterly 14 days after the end of each quarter (23 days for ROS users who file and pay online)

[Table source: https://www.revenue.ie/en/employing-people/paye-modernisation/changes-from-1-January-2019.aspx|

What to do now

In June of this year (2018), Revenue will ask employers to submit a list of current employees. The immediate priority, therefore, is to check that you have registered all your employees and received a tax deduction card (P2C) for each of them. Check also that you have Personal Public Service Numbers (PPSNs) and up-to-date addresses for all employees. If you rely on payroll software and/or an agent to manage payroll on your behalf, make sure that they are ready for the PAYE Modernisation regime. Weaknesses in your PAYE procedures are likely to be highlighted by real time reporting so now is the time to ensure you are operating the correct procedures.  For further information and advice, please contact a member of our team.

Succession planning is not just a matter of securing the future of your business. It’s also about protecting your personal financial security, explains David O’Connor.

Business owners tend to delay planning for what will happen when the time comes to exit the business. Unfortunately, this can be an expensive mistake because failing to develop a succession plan may result in lost opportunities and higher tax bills with an adverse impact on the business and on the owner’s personal financial situation.

Succession planning is not just a matter of identifying and developing a person or team to take over your business. It is also about developing a plan that will provide you with adequate retirement income.

Your plan should include a strategy to cope with unexpected events which might cause you to exit  sooner than you otherwise intended.

Examples of such events include:

  • Accidents or illness,
  • Changes in family circumstances,
  • Unexpected offer to purchase the business,
  • Loss of key customers or markets,
  • New competitors.

Deciding on an exit strategy

Your exit strategy will depend on many different factors. For an SME, it could involve planning for a future management buyout. For a family business, it might be identifying and developing a suitable successor from within the family or bringing in someone from outside to take over in due course. For a sole trader, it might involve partnership or incorporation. For farm businesses, it could be setting up a succession partnership. Some owners may choose to sell up or even wind up the business.

Whatever the circumstances, timing and tax, need to be carefully considered as different strategies can have very different financial outcomes.

To take Capital Gains Tax as an example, depending on your circumstances, you may be able to avail of Retirement Relief or Entrepreneur Relief which could significantly reduce, or even eliminate, your CGT exposure subject to meeting certain conditions when disposing of your business.

Finance Act 2017

Where your succession plan involves a management buyout or selling shares in the business, it is important to check whether your plans will be affected by new measures introduced in Finance Act 2017. The changes aim to counter tax avoidance where certain companies sought to extract value from a company as capital rather than income, in order to avail of the lower CGT rates. The new measures restrict the amount of a consideration which may be treated as a ‘new consideration’ when derived from share capital or securities of a close company, and provide that a payment to a member of a close company, on a disposal of shares or securities in the company, will be treated as a distribution, in circumstances where the consideration for the acquisition of the shares or securities is funded, or to be funded, directly or indirectly out of the assets of the company.

Reviewing your Succession Plan

Succession planning is not a once-off activity. Circumstances change and plans need to be updated accordingly. A key focus should be to optimise your business now so as to maximise your future financial security. For more information and to find out how Sheil Kinnear can help, please contact a member of our team.

 

As your business develops, there can be advantages to restructuring as a limited company. However, incorporation is not for everyone, explains David O’Connor.

For sole traders, restructuring your business as a limited company can be an attractive option, particularly if you are in the higher income tax bracket or if you need to raise funds to grow your business. However, it is important to take professional advice as incorporation may not necessarily be the best, or the only option, to consider.

Advantages of Incorporation

Tax is usually cited as the main advantage when forming a limited liability company. This is because companies pay 12.5 percent corporation tax on their trading profits whereas a sole trader’s profits are taxed at the marginal income tax rate plus USC and PRSI. While the directors and shareholders of the company must still pay income tax, they can limit their earnings so that they are taxed at the lower income tax rate, leaving any remaining profits in the company to fund future development or be extracted at a later date.

Other advantages of incorporation include:

  • A company is a separate legal entity. This means that, with some exceptions, where the company incurs a liability, the liability rests with the limited liability company rather than with the directors and shareholders.
  • The liability of company shareholders (with the exception of unlimited companies) is limited to the amount they paid for the shares whereas for sole traders there is no limit on their personal liability for the debts of the business.
  • Company pension contributions enjoy greater tax advantages than self-employed pension plans.
  • Companies have greater flexibility to when it comes to remuneration. For example, they can reward directors and shareholders by way of salary, directors’ fees and dividends.
  • Companies can pay business expenses to employees and directors at civil service rates whereas sole traders can only claim for the actual expenses incurred.
  • Companies have the ability to raise finance by issuing shares and are more attractive to investors because of their limited liability.

Disadvantages of Incorporation

 

A disadvantage of incorporation is that companies have additional reporting and filing obligations and directors can be prosecuted for failing to comply with company law.

Loss of confidentiality can be a concern for some businesses as certain company information is publicly available through the Companies Registration Office.

Another issue is that incorporation can sometimes have an adverse tax impact, especially for businesses with trading profits below a certain threshold. Therefore, unless there are other compelling reasons, incorporation is generally not advisable for these businesses.

There are also anti-avoidance measures in place to counter situations where the main motive behind a transaction is avoidance of tax.

For certain businesses, alternatives to incorporation may be worth considering. Farm businesses, for example, should weigh the advantages of partnership and/or succession partnership before deciding to incorporate.

Practical considerations

Having considered the options and taken appropriate professional advice, if you decide to proceed with forming a limited company, there will be a number of practical issues to address. These include transferring assets, property, insurance, utilities and contracts to the company, setting up new bank accounts, advising creditors and debtors of the change, revising employee contracts, notifying Revenue and registering the directors as employees, updating licences, and ordering new stationery.

Conclusion

Changing your structure is a major business decision and professional advice should always be obtained. It is important to consider not just immediate needs, but also your long term plans, including your succession plan. While forming a limited company can be the right choice for many businesses, it is not for everyone.

For further information and to find out how Sheil Kinnear can help, please contact a member of our team.