News and information about the Government's tax policy work programme, including:
- proposed changes to the laws that Inland Revenue is responsible for
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Next steps announced for simpler PAYE
3 November 2016
The Government has today released early information on proposals to make the administration of PAYE simpler following feedback on the discussion document, Making tax simpler – better administration of PAYE and GST, released late last year.
For more information see the document PAYE reporting, which provides early information about proposals likely to be included in a tax bill to be introduced in 2017.
See also the summary of feedback received on the original proposals outlined in the November 2015 discussion document.
Further background information about the proposals can also be found in the Minister of Revenue’s speech to payroll practitioners today.
3 November 2016
Speech to the NZ Payroll Practitioners Conference announcing changes to PAYE processing
Good morning. Thank you for inviting me to speak to you today. This is my first address to you as Revenue Minister and it’s a great opportunity to meet some of the people who help implement government policies.
As the people who ensure that wages are paid correctly and on time, you are a very important group for the government and for the economy. A lot rides on you being able to do your jobs accurately and efficiently.
So I’d like to spend a bit of time today telling you about how the Government aims to help you in your important work.
I’d like to build on what my predecessor, Todd McClay said to you last year about the Government’s major modernisation of tax administration called Business Transformation.
At that time he outlined some of the main points of proposals in a consultation document released for public feedback aimed at making tax a less onerous part of the payroll process.
The proposals focussed not on what you do for PAYE, but how you do it – process improvements. Tax is just one component of your role, but we can make that part as simple as possible by taking advantage of technological advances. Technological advances that many, if not most businesses are already using every day in their normal day to day business operations.
The Government’s objective is for businesses to spend more of their time focusing on growing their business rather than fulfilling tax requirements. The key to this is smarter use of software — integrating the tax process into your normal day-to-day business operations.
What we are aiming to do is to further integrate the tax process into your normal operations. We’re already well down the track with GST.
We know from a recent survey that people who use accounting software to prepare and send their GST returns to Inland Revenue are experiencing a significant compliance cost reduction. This is a pretty strong indication to me that integrating tax processes into normal business processes is the way to go and the Government wants to achieve those benefits for employers.
It was on this basis that the Government issued those proposals last year for public feedback. I’d like to thank all those who provided feedback on the proposals. There were over 1000 online comments received as well as 87 written submissions.
That feedback has helped shape the Government’s decisions and it gives me great pleasure to announce those decisions to you here today.
The thinking behind the main proposals I’m announcing today can be explained pretty simply:
- Employers currently pay their employees on a timetable that suits their business, so let’s make the PAYE information part of that rather than making it a separate process to suit IRD’s timetable.
- Employers are already using software for their payroll, so let’s give the employer more value out of their system by enabling the software to do more
I’ll give you some of the highlights of the finalised recommendations that will go into a tax bill to be introduced next year, as well as update you on some of the proposals that didn’t make the final cut because of public feedback.
Of course this remains subject to the parliamentary process, so at this stage, they remain as proposals, but my intention today is to provide employers and their software developers with a good indication of the shape of upcoming changes.
Firstly, we’re proposing that from 1 April 2019 businesses will begin payday reporting of PAYE information.
You’re already in the system at that point managing the payroll so why not integrate the next step, the provision of PAYE information to Inland Revenue, and do it all at once?
Making the filing of PAYE information part of the sequence will help to make providing PAYE information less time consuming and therefore less costly for employers. It also has wider benefits for the community. Providing that information at that time will help provide the IRD with better information which they can use to improve how they administer things such as Working for Families, child support and student loans.
This will help get employees on the right deduction to ensure that people get the benefits they should and their liabilities are calculated correctly.
The intention is that PAYE information from employers who are over the electronic filing threshold, payroll intermediaries and small employers using payroll software would be required as close as possible to payday.
Details as to precisely when payday information will be required are still being worked through but it is likely to be to be around two working days.
Although the proposal is that payday reporting of PAYE information will be required from 1 April 2019, Inland Revenue is working on providing payday reporting for early adopters who are keen to use the system sooner.
The changes from Inland Revenue’s Business Transformation will open up a fully digital system for those who want to eliminate paper interactions with Inland Revenue.
You will also have better access to your already filed information and better processes for error correction and adjustments.
Another proposal we asked you for feedback on was paying PAYE at the same time you pay your staff.
While some commented that paying PAYE as well as filing PAYE information at the one time would reduce compliance costs, a number of businesses were concerned about cash flow.
Following this feedback, the Government has decided not to require employers to pay their PAYE and other deductions to Inland Revenue on payday. If employers want to take advantage of doing everything at the same time including paying Inland Revenue on payday they will be able to do so.
However the current payment obligations, either twice monthly for the largest employers and payroll intermediaries or monthly for the rest, will remain the same.
A number of small businesses voiced their concern about all employers being required to use payroll software. We agree with those concerns.
The objective is to help businesses and if a business is not currently using payroll software, then we’re not going to require them to invest in such technology.
But we do believe that we can offer an improvement on traditional paper filing, so employers who don’t want to use software will be able to file their PAYE information through the Inland Revenue website, using an improved version of myIR.
And of course the smallest organisations will still be able to file their PAYE information on paper if they prefer.
Payday information from small employers not using payroll software will have a due date of 7 working days after payday.
All of what I have outlined for you is representative of how business practices have changed. Less than twenty years ago, electronic filing was largely the domain of large employers. That’s no longer true.
In 1999, a threshold of $100,000 a year of PAYE and ESCT was set for electronic filing. That hasn’t changed since, but business practices certainly have.
Today, most organisations are connected to the internet and do their banking or find a phone number or a multitude of other normal business activities online.
So in keeping with current business practice, we are proposing to reduce that threshold to $50,000 a year of PAYE and ESCT from 1 April 2019.
The new thresholds exempt the smallest organisations but will require an employer with four full time employees at the average wage or ten at the minimum wage to file through Inland Revenue’s website or through payroll software.
There will be an exemption from electronic filing for any employers who cannot access digital services.
And in line with the more widespread use of electronic services, the Government has also decided to end the current payroll subsidy from 1 April 2018.
In the early days of electronic filing, the subsidy helped improve the quality of PAYE information transmitted to the IRD, by encouraging employers to use listed payroll intermediaries. But time and technological advances have overtaken the subsidy and we believe there is no longer a case to subsidise one type of payroll service over others.
The Government has also decided to make some minor changes affecting the calculation of PAYE and related deductions and contributions, with effect from 1 April 2018.
For the purposes of calculating PAYE deductions, employers will be given the option to treat holiday pay paid in advance as if the lump sum payment was paid over the pay periods to which the leave relates, rather than treating the payment as an extra pay.
Several submitters wanted employers to be able to use this more accurate withholding method. While the Government has agreed to allow employers to use this method, we are not making it mandatory due to concerns that it may increase compliance costs for employers without payroll software.
To reduce complexity and confusion for employers, the rules in tax legislation about how legislated rates or threshold changes are applied will be aligned across the different types of PAYE income payments and PAYE-related initiatives such as KiwiSaver contributions and student loan deductions.
The rates and thresholds to be applied will be those in force on the date the payment is made. This alignment of the rules will simplify the transitional process for employers when a legislated rate or threshold change occurs.
So, these are the main PAYE proposals arising from last year’s public consultation which will be included in a Bill that I intend on introducing in the House early next year.
What I’ve outlined today is intended to help make the PAYE component of your jobs a little easier and a little smoother.
In doing that it also helps businesses by making their processes a little less costly and helps individuals by helping to make their tax affairs more accurate as well as any child support, KiwiSaver and student loans deductions.
The finalised proposals were shaped thanks to the many people, including many of you here today, who took the time to consider the proposals and provide expert advice on how to make the proposals work better.
Thank you again for that, and for inviting me to speak to you today. Keep up the great work.