Chapter 2 - Environment for PAYE error correction and adjustment
2.1 The following principles have guided the approach in this issues paper:
- Wherever possible, processes for adjustments should be automated and allow employers to make adjustments consistent with their existing payroll practices.
- Processes must, however, be available to accommodate employers that do not use payroll software.
- Income, tax and other deductions withheld should be determined and reported as accurately and quickly as possible. This should enable social assistance entitlements to be calculated more frequently than annually.
- Solutions should be consistent with the principle that employees are taxed when the cash is received; adjustments should follow the flows of money.
- When employer and employee negotiate a correction to pay, as far as possible, tax should follow what is agreed between the parties.
- Solutions should be consistent, with reasonable compliance expectations, and should not create opportunities to correct absence of reasonable care or fraudulent behaviour.
2.2 Changes proposed to PAYE in the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Bill are part of the Government’s transformation of the tax administration system. The proposed changes are intended to make use of digital systems to reduce compliance and administrative costs, and improve the administration of social policies delivered by Inland Revenue.
2.3 In developing the new environment for PAYE reporting, Inland Revenue is committed to an approach that reduces the need for corrections, and minimises the downstream implications of inevitable errors and adjustments. The importance of improving guidance in this area is also acknowledged.
2.4 Planned changes to the PAYE system include the following features, which should reduce the need for rework and/or reduce the downstream impact.
Electronic “on-boarding” and early advice of departures
2.5 Inland Revenue’s new system will be able to electronically receive and respond to information about new employees before they are first paid. This will allow employers to submit the relevant fields to Inland Revenue and check the IRD number and the employee profile (proposed tax code and deduction types) before the first salary or wage payment is made. This service should help employers to ensure that the correct deductions are being made, reducing the need for subsequent intervention by Inland Revenue, and rework by employers.
2.6 It will also be possible for an employer to advise Inland Revenue directly from their payroll system that an employee has left the employer. Early advice will break the employee/employer link in Inland Revenue’s system and should ensure that the employer is no longer contacted about that employee.
Resubmit a whole pay
2.7 Employers will have the ability, if necessary, to reverse out and resubmit a whole payday submission (the payday equivalent of an employer monthly schedule).
Speed of processing
2.8 Once migration to Inland Revenue’s new computer system is completed, there will be an increase to the speed of processing, for both original PAYE submissions and adjustments, and employers will be able to readily track the progress of submissions and adjustments.
2.9 In addition, Inland Revenue’s new system is being designed to ensure that errors in employee data only delay the processing of that particular record, not the whole submission.
2.10 Some employers pay contractors what are defined as “schedular payments” from which PAYE must be withheld. If these contractors are paid through the accounts payable system, the current limitation that restricts employers to one employer monthly schedule (EMS) per month can cause problems. Officials understand that some employers routinely file contractor PAYE information using an IR344 (EMS amendment form).
2.11 Payday reporting will require employers to file employment income information within two or seven working days from the day on which contractors liable for PAYE are paid. The existing restriction on multiple submissions will disappear and it will be possible to file information relating to schedular payments in a standalone submission.
2.12 Employers who use payroll software will be able to generate the information they require to amend already filed returns as a by-product of correcting their own records. Rather than being required to resubmit a whole return, it is envisaged that payroll software will be able to generate a schedule of corrections that could either be submitted with the payday return or as and when it is available.
2.13 Employers will also have the option of accessing their filed returns through myIR and self-correcting the records that are wrong.
2.14 In addition, a paper error correction form will continue to be available and for the foreseeable future, employers with simple corrections will still be able to make them by telephone.
- Do you have any questions or concerns about any of the issues or principles covered in this Chapter? Please let us know what they are.
5 While it will be possible to provide this information and get a response before the first payment is made, it will not be a requirement for employers to provide this information before the first payment. The requirement will be that information about new employees comes with or before the first payment of PAYE income.
6 The Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Bill also proposes to require employers to provide contact details for their employees and date of birth information when this has been provided.