Tax Watch: Edition 4, June 2017

Proposed changes to reporting of employment income information

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Parliament to consider payday reporting rules

Parliament’s Finance and Expenditure Committee (FEC) has called for feedback on proposals to modernise and simplify the administration of PAYE (pay as you earn). Providing employment income information in electronic form within two days will be mandatory for many employers.

As an employer, these proposals will affect you. Make your voice heard before submissions to FEC close on 5 July 2017.

Employers currently file employer monthly schedules (EMS) to meet PAYE and Employer Superannuation Contribution Tax (ESCT) obligations. The changes will make payroll and PAYE reporting part of your payday schedule rather than a separate process. Most employers will be required to report employment income information electronically rather than in paper format.

The proposed changes are a welcome simplification. But some employers will need to make changes to payroll systems to comply with the new rules.

The changes impact payments made to employees after 1 April 2019, with early adoption available for payments made from 1 April 2018.

Employment income information to be filed electronically shortly after payday

Employers who have more than $50,000 (down from the previous $100,000) of PAYE and ESCT deductions a year will be required to file employment income information electronically shortly after the day of payment.

As an employer, you will be in one of four groups:

  • Online group - this will be the norm. It is the default group for all employers, including all PAYE intermediaries. You will be required to file from payroll software or using an Inland Revenue secure online service (myIR) and transmit employment income information within two working days of the date of payment.
  • Threshold group - small employers below the $50,000 electronic filing threshold who do not use payroll software. Employment income information will be reported in a prescribed paper form within seven working days of the date of payment.
  • Electronic exempt group - employers who are specifically exempt by the Commissioner if you can demonstrate why electronic filing is not a reasonable expectation, e.g. you are unable to access suitable digital services to file on myIR. You will file in a prescribed paper form with the information due to Inland Revenue within seven working days of the date of payment.
  • New employer group - new employers who exceed the electronic filing threshold who don’t have payroll software. This group may choose to file in a prescribed paper form within seven working days of the date of payment for the first six months they employ employees.

Non-notified tax codes to apply to extra pays

It is your employee’s obligation to notify you as employer of their correct tax code and of any changes to that tax code. Under current rules, the failure of an employee to provide their correct tax code results in the application of the ‘no notification’ tax code.

Under the proposed new rules the no notification tax code will be renamed the “non-notified” tax code. This tax code will also be extended to apply to extra pays (e.g. lump sum payments).

The non-notified tax code will apply where:

  • Your employee has not notified you of their name, IRD number and tax code, and
  • The Commissioner has not provided you as employer with a tax code or change in tax code, and
  • The employee is not a non-resident seasonal employee during their first month of employment.

Filing penalties to remain monthly

Late filing and non-electronic filing penalties will remain one-off monthly penalties, regardless of how many times an employer is non-compliant during a month.

The maximum late filing penalty will be $250 per month and the maximum penalty for failing to file electronically will be $250. Penalties will be due for payment within 30 days of the end of the month in which the non-compliance occurred.

New and departing employees

Inland Revenue will encourage employers to send new employee information prior to making the salary and wage payments in order to validate the new employee’s IRD number and proposed tax code. Employers will be required to provide the new employee’s date of birth and contact details.

Similarly, early notification of employment cessation for employees will be encouraged to ensure a new employer gets the correct tax code and the correct employer contact details are used by Inland Revenue.

New path to obtaining an IRD number for non-residents

Offshore persons applying for an IRD number are currently required to provide Inland Revenue with evidence of a functional New Zealand bank account or due diligence information. Due to the practical difficulties associated with this requirement, the new rules propose providing the Commissioner with the discretion to issue IRD numbers in cases where there is no New Zealand bank account but the Commissioner is satisfied with the applicant’s identity and background.

Next steps

The proposals reflect the Government’s intention to have more employers engaged in electronic filing. Employers will need to consider the impact of the changes on their payroll reporting and any changes required to their current payroll systems.

The majority of the administrative and more granular aspects of the program (including rectifying errors and impact on expatriate shadow payrolls) remain undefined. It is understood the Government will seek consultation from key public stakeholders prior to the finalisation of any legislation.

Please contact us if you would like to discuss the impact of the proposals on your business, or if you would like to talk about making an independent submission on the proposals.