Sweden: Monthly PAYE to replace annual income statements

January has traditionally been a busy time for payroll professionals in Sweden as it has always been necessary to report annual income statements. Income statements (the Swedish abbreviation is a ‘KU’) play an essential role in the Swedish tax system, and wider society, as they are used to decide the amount of income tax that each citizen pays.

Each taxpayer must submit a KU if they are paid a salary, pension, interest or dividends. The statement is based on the year the income was earned, which means that what was earned during 2017 will be included in the income statement for 2018.

But in 2019, the KU will be replaced by monthly reporting through employers’ tax returns, which is otherwise known as Pay As You Earn (PAYE). This new means of PAYE reporting will take place via the AGI-Arbetsgivardeklaration med individuppgifter.

This reform is part of the government’s plan to weaken the black economy in Sweden and is considered one of the Tax Agency’s top projects – as evidenced by its willingness to work with industry bodies such as Srf konsulterna, software providers and neighbouring countries’ tax authorities to get it right.

So what difference will it make? Whereas today an employer provides summarised information about all of their staff in the round, the AGI will include personal data about each individual.

As a result, KUs will more or less vanish, although they will be used for certain statements related to income other than that earned as an employee. This new way of reporting will consist of two stages:

Stage one

With stage one, some employers will be required to start reporting using AGI as of August 2018. This was a political decision as neither the Tax Agency nor the payroll industry wanted such a big change to come into effect during the most important holiday months of the year.

In practice, businesses with at least 15 employees (read 16) and ‘demands’ on their personnel ledger will need to declare a PAYE that includes personal data about employees for incomes that are due to be paid in July, for filing in August.

AGI reporting will need to take place at the same time as the KU is submitted, which means that these employers will have to deal with both KUs and AGI reporting in 2018. ‘Demands’ on personnel ledger mean that a ledger must be maintained if running a business in the construction, restaurant, hairdressing or laundry sectors. These industries will be affected by AGI from 1 July. Legislation has also been passed in relation to additional industries, but they are not affected by AGI and will instead report as companies.

Stage two

Stage two will come into force at the start of next year. It will result in all companies and other taxpayers including groups such as sports clubs, being obliged to report income statements using AGI.

As a result, in January 2019, taxpayers will receive their last KU for incomes earned during 2018 and must use the AGI for reporting purposes from 1 January 2019 onwards. This means that payslips will become more important to employees as they will replace the KU in acting as a receipt and proof of withheld taxes.

Srf konsulterna has been devising a standardised payslip that will mirror the information employees can access when logging onto their personal account at the Tax Agency. It will be launched very soon.

A new era

AGI marks the start of a new era for Swedish payroll. Henceforth, employers will no longer report the summarised data relating to all their employees at the end of each year, but the personal data of each individual each month.

Both kinds of information are required for payroll applications to work as each individual’s data is needed to arrive at a total sum, which is an easy calculation. But for that to happen, their pay must be accurate from the outset – and that is not so easy.

Payroll errors often arise from discrepancies in data that is held in HR systems, with one of the biggest challenges being changes to employment status. For example, lots of Swedish ‘collective tie’ agreements, the foundation of payroll calculations, have lagging deductions. In other words, what occurred in April will be deducted in May.

There is also the risk of increasing gross pay debts. This situation has the potential to disrupt payroll processing as it involves a whole chain of people within the organisation. But ensuring payroll data is clean is just as vital in the case of first and second line self-service too.

While many countries have already gone down the PAYE route, Sweden, together with Finland, are the last of the Nordic countries to do so. But its benefits should be widespread, not least because AGI will in future enable other public authorities to obtain information about taxpayers via the Tax Agency, which means the reporting burden of payroll departments should lessen.

Moreover as payroll reporting will take place at regular intervals throughout the year, January should become an easier month for everyone.

Zennie Sjölund is divisional director for payroll of Srf konsulterna https://www.srfkonsult.se, Sweden’s association for accounting and payroll consultants, which was formed in 1936. Srf konsulterna’s role is to promote effective and modern payroll processes as well as provide certification for members and help to boost their professional skills. It has also developed a code of conduct (SALK).

January has traditionally been a busy time for payroll professionals in Sweden as it has always been necessary to report annual income statements. Income statements (the Swedish abbreviation is a ‘KU’) play an essential role in the Swedish tax system, and wider society, as they are used to decide the amount of income tax that each citizen pays.

Each taxpayer must submit a KU if they are paid a salary, pension, interest or dividends. The statement is based on the year the income was earned, which means that what was earned during 2017 will be included in the income statement for 2018.

But in 2019, the KU will be replaced by monthly reporting through employers’ tax returns, which is otherwise known as Pay As You Earn (PAYE). This new means of PAYE reporting will take place via the AGI-Arbetsgivardeklaration med individuppgifter.

This reform is part of the government’s plan to weaken the black economy in Sweden and is considered one of the Tax Agency’s top projects – as evidenced by its willingness to work with industry bodies such as Srf konsulterna, software providers and neighbouring countries’ tax authorities to get it right.

So what difference will it make? Whereas today an employer provides summarised information about all of their staff in the round, the AGI will include personal data about each individual.

As a result, KUs will more or less vanish, although they will be used for certain statements related to income other than that earned as an employee. This new way of reporting will consist of two stages:

Stage one

With stage one, some employers will be required to start reporting using AGI as of August 2018. This was a political decision as neither the Tax Agency nor the payroll industry wanted such a big change to come into effect during the most important holiday months of the year.

In practice, businesses with at least 15 employees (read 16) and ‘demands’ on their personnel ledger will need to declare a PAYE that includes personal data about employees for incomes that are due to be paid in July, for filing in August.

AGI reporting will need to take place at the same time as the KU is submitted, which means that these employers will have to deal with both KUs and AGI reporting in 2018. ‘Demands’ on personnel ledger mean that a ledger must be maintained if running a business in the construction, restaurant, hairdressing or laundry sectors. These industries will be affected by AGI from 1 July. Legislation has also been passed in relation to additional industries, but they are not affected by AGI and will instead report as companies.

Stage two

Stage two will come into force at the start of next year. It will result in all companies and other taxpayers including groups such as sports clubs, being obliged to report income statements using AGI.

As a result, in January 2019, taxpayers will receive their last KU for incomes earned during 2018 and must use the AGI for reporting purposes from 1 January 2019 onwards. This means that payslips will become more important to employees as they will replace the KU in acting as a receipt and proof of withheld taxes.

Srf konsulterna has been devising a standardised payslip that will mirror the information employees can access when logging onto their personal account at the Tax Agency. It will be launched very soon.

A new era

AGI marks the start of a new era for Swedish payroll. Henceforth, employers will no longer report the summarised data relating to all their employees at the end of each year, but the personal data of each individual each month.

Both kinds of information are required for payroll applications to work as each individual’s data is needed to arrive at a total sum, which is an easy calculation. But for that to happen, their pay must be accurate from the outset – and that is not so easy.

Payroll errors often arise from discrepancies in data that is held in HR systems, with one of the biggest challenges being changes to employment status. For example, lots of Swedish ‘collective tie’ agreements, the foundation of payroll calculations, have lagging deductions. In other words, what occurred in April will be deducted in May.

There is also the risk of increasing gross pay debts. This situation has the potential to disrupt payroll processing as it involves a whole chain of people within the organisation. But ensuring payroll data is clean is just as vital in the case of first and second line self-service too.

While many countries have already gone down the PAYE route, Sweden, together with Finland, are the last of the Nordic countries to do so. But its benefits should be widespread, not least because AGI will in future enable other public authorities to obtain information about taxpayers via the Tax Agency, which means the reporting burden of payroll departments should lessen.

Moreover as payroll reporting will take place at regular intervals throughout the year, January should become an easier month for everyone.

Zennie Sjölund is divisional director for payroll of Srf konsulterna https://www.srfkonsult.se, Sweden’s association for accounting and payroll consultants, which was formed in 1936. Srf konsulterna’s role is to promote effective and modern payroll processes as well as provide certification for members and help to boost their professional skills. It has also developed a code of conduct (SALK).