Payroll year end can be a stressful time of year for everyone involved – but it doesn’t have to be. It’s essential that you know your obligations as a payroll operator.
PAYE modernisation has changed what you need to do to carry out a successful payroll year end. It’s simplified the process but there are still four key steps that you need to take.
Read this article for help with carrying out the year end process smoothly and setting up the new year.
How PAYE modernisation has changed payroll year end
Before PAYE modernisation, your HR and payroll team needed to complete and file an annual return.
You would do this using a P35 return, which was an annual declaration to Revenue of pay as you earn (PAYE), pay related social insurance (PRSI) and universal social charge (USC) for all of your employees who had worked for your business within that tax year.
You would also have needed to give a P60 certificate to your employees. In it, it would highlight cumulative earnings, PAYE, PRSI and USC for the tax year in question.
However, PAYE modernisation has resulted in the following:
- P35 returns have been abolished
- P60s are no more
- P2Cs (an employer’s copy of an employees Tax Credit Certificate) have been replaced by the Revenue Payroll Notification.
What is the Revenue Payroll Notification?
Your business needs to use the Revenue Payroll Notification (RPN) to make sure the latest information from Revenue is applied to the pay of your staff. It replaced the P2C in January 2019.
The RPN provides your HR and payroll team with the information required for you to deduct the following from each of your staff members at every pay period:
- Local property tax
- Income tax.
What payroll year end looks like now
Payroll year end is very similar to any other pay period, now that you make submissions to Revenue every time you pay your employees.
There are just a few preparation tasks and additional steps that you and your HR and payroll team needs to carry out.
And instead of having to run the aforementioned P35 and P60 tax year end reports, as well as the PRC1 (a report that listed all employees who changed PRSI class more than twice in the past tax year), Revenue will produce an end of year report for all employees.
They will be able to view and print the report from the myAccount portal on Revenue’s website.
The report includes details of your employees’ pay and deductions from all employments in the tax year.
Payroll year end things to do: 4 key steps
Follow these four steps to complete your payroll year end and prepare for the new year.
Step 1: Install the year end software update
The first thing to do with your payroll software is to take an administrator backup of your data. This is really important – if for any reason your computer becomes unusable or damaged, you can access the backed-up data.
Best practice tip: back up your data regularly.
Once that’s done, you can download and install your year end update.
Step 2: Prepare for year end
As mentioned previously, completing your tax year is now much easier thanks to PAYE modernisation. You don’t need to run P35 or P60 reports anymore, and there’s no need to submit a year end return.
Check your payroll software is up to date. If it’s not, make sure you update it or you’ll miss out on new legislation (such as new USC thresholds), for example, which would be part of the updated software.
Check to see if you have an extra pay period. An extra pay period occurs when the regular pay date for weekly, fortnightly or four-weekly paid employees falls on either Wednesday 30 December or Thursday 31 December.
As 2020 is a leap year, there are two pay days that may result in an extra pay period.
Process your final pay periods of 2020. To complete your final pay run, process the remaining pay periods of 2020; process any leavers; post the end of period values after finalising your payroll; then take a full system back up of each of your payroll companies.
Company details to check. Take the time to check that your payroll data is correct. That includes your company information (postal address, company name, etc), employee details, and pensions – which need to be set up correctly.
Step 3: Run your year end report
Print out your Employment Detail Summary report. This is an optional step – the report isn’t required by Revenue but you may want to keep it for your records.
It’s a summary of the pay and tax details for each of your employees that have been with your business for the year.
Step 4: Get ready for the new tax year
Now you can get set up for 2021. There are number of tasks you need to complete to be ready.
Go into your payroll software and create a 2021 tax year.
Set up a new tax year calendar – and make sure you enter the correct pay date for period one. This is important because it will set the rest of the dates for your 2021 pay periods.
Then you’ll need to set period one of the 2021 tax year. It’s worth checking the dates and info are correct (edit them if necessary).
You may need to enable Central Statistics Office (CSO) reporting if the CSO has selected your company for surveying.
Additional Superannuation Contribution (ASC) was introduced in January 2019 and it replaced the Pension Related Deduction (PRD). Got employees who are liable for ASC deductions in 2021? You’ll need to add the relevant settings within their records.
Two more tasks to complete. Firstly, you’ll have to clear your financial year end balances. It’s an optional task, where you’ll have to remove any that you don’t want to feature in your new financial year.
And finally, you should validate your payroll data. Once you’ve done that for all of your payrolls, you can begin processing payrolls in the new tax year.
Conclusion on payroll year end
Although the payroll year end process has been simplified due to PAYE modernisation, it’s still worth taking the time to get this right.
Give yourself (or your team) plenty of time to get the steps completed correctly so you can start the new year on the right foot.
Editor’s note: This article was first published in December 2019 and has been updated for relevance.