Government changes to the PAYE tax system will have major implications for payroll software developers and users.
Among the changes announced were the elimination of individual IR5 returns and annual reconciliations, and the institution of a regular monthly schedule to be filed by employers. This will record all tax deductions made on behalf of employees for that month.
Employers whose annual PAYE deductions amount to more than $100,000 will be required to file this information with the Inland Revenue Department electronically. Electronic filing won’t be compulsory for smaller employers although they will be encouraged to do so.
The move to regular electronic filing will require the development of new software or modifications to existing software used with payroll systems.
IRD says it hasn’t worked through all the details but knows that changes to current payroll software will be needed. “When we have full details, we’ll send a new set of specifications to payroll software developers. April 1, 1999 is not far away, so you may wish to start thinking about how your system will cope with the new requirements from then.”
Spokesman Alan Groves says until the department has chosen an electronic data transfer solution vendor it cannot give a format or a date as to when it will have that information available.
An IRD request for proposal for an EDI (electronic data interchange) or business-to-business e-commerce solution has closed but Groves would not comment on which vendor or vendors have made the short list or when a decision is likely to be made.
Around 1300 software developers have been sent personalised letters and all employers have been sent letters about the forthcoming changes.
Under the Taxation (Simplification and Other Remedial Matters) Bill, now before a select committee, section 36B exempts employers who have accounting systems that are incapable of providing information electronically.
The department will take into account compliance costs and the number of employees in determining if an employer qualifies for the exemption. Section 36B (2) (c) and (d) states that an exemption from filing the employer monthly schedule electronically will be given only to employers of 100 or fewer employees. This will decrease to 50 employees from April 1, 2000.
A penalty on employers who are required to file employer schedules electronically but fail to do so is also proposed. The penalty will be the greater of $250 or $1 for each person employed at any time during the month to which the employer monthly schedule relates.
Peter Nathan, managing director of Auckland-based Comacc, which develops Comacc Payroll, says the changes will mean a major upgrade of payroll systems.
“It’s going to have a major impact. All developers will have to provide an export file in their software, similar to what we provide for banking at the moment. However, we don’t know what format it will have to be in.
“This will be a major upgrade because it will have to incorporate the electronic payment provisions and all the government’s proposed changes to the tax codes. Changes are quite easily made but there is always a huge amount of testing involved. We spend 2000 hours in testing.
“We’re geared to do it because we have half a dozen people who do nothing but support and three developers. People who do payroll as part of an overall suite might find it more difficult.”
Nathan says the changes might involve a substantial cost to some end-users, although Comacc won’t be charging for changes.
Don Bowman, managing director of Focus Business Solutions in Auckland, which develops CBA and Greentree, says most companies with payroll systems will be required to change. “Annual PAYE deductions of more than $100,000 equate to about 10 staff.”
He does not see the changes as presenting a great problem as long as the IRD makes the format known by Christmas.
“We’ve already done the changes for IR12 forms and we can already send those electronically to the IRD. As for the monthly schedules, we can already generate them. It’s just a matter of waiting for the IRD to provide a format for electronic transfer. When they do, providing they do it by the end of the year, we should be able to test it and get it approved.”
Bowman says he only found out about the changes accidentally on the IRD Web site. “As far as I am aware we have never received a letter from the IRD, although we might have just got left off its mailing list.”