The latest changes to HMRC data collection will almost certainly affect your business if you are an employer.
You may also be impacted if you’re a shareholder or you’re self-employed. You’ll need to act quickly to make sure that you’re compliant with these new regulations.
Although they’re controversial, they’ll be put into effect over the next 2 years.
HMRC expects that the new legislation will affect: “1.2 million self-employed businesses each year, 1.9 million PAYE-registered businesses including civil society organisations, and 900,000 businesses which include shareholders of an owner-managed business, who will be required to submit information to HMRC by 2026.”
In this blog you’ll learn about:
What are the changes to HMRC data collection?
The information that you need to send to HMRC through both your income tax Self Assessment and via the real-time information (RTI) returns that you complete as an employer will change.
These new requirements and the associated powers given to HMRC were introduced by the Finance Act 2024, in Section 8 and 12 of the Taxes Management Act 1970 (TMA).
They consist of 3 main strands:
- For employers
If you’re an employer, then you’ll need to start providing more detailed information about your employee hours paid via Real Time Information (RTI) PAYE reporting.
Under (RTI), employers and pension providers need to tell HMRC in their Full Payment Submission (FPS) about income tax, National Insurance contributions (NICs), and other payroll deductions they make in real-time. This means when or before you make the payments to your employees or pensioners.
The figure for employee hours will depend on whether your employee is paid at an hourly rate or through a contract which specifies a number of hours. It might also be a combination of the two.
If you haven’t got this information, then you’ll be required to explain why you don’t have it. It’s important to note that this change puts the burden of reporting firmly onto your shoulders as the employer.
- For shareholders
If you’re a shareholder in an owner-managed business, then you must provide the amount of dividend income that you receive from your own company separately from any other dividend income that you might receive from other shares that you hold.
You’ll also have to declare the percentage of shares you hold in your own company via your Self Assessment return.
HMRC is adding new, mandatory questions to the Self Assessment tax return.
It asks for the name and registered number of the close company, the value of dividends that you receive from that close company, and the person with the greatest percentage shareholding in it.
According to HMRC, a close company is a limited company with 5 or fewer “participators.” It might also be a limited company in which all the “participators” are also directors.
- For the self-employed
If you’re self-employed, you’ll need to provide information on the start and end dates of your self-employment via your Self Assessment return. At the moment these questions are just voluntary.
Why is the government introducing these changes?
According to HMRC’s policy objective, the aim is: “to improve the quality of the data collected by HMRC to provide better outcomes for taxpayers and businesses, as well as improving compliance, resulting in a more resilient tax system.”
The aim, according to the government’s consultation on these changes, is to help it understand changes in the labour market.
In particular, ministers want to know more about the hours that employees work and about any voluntary part-time work we’re doing, as well as what it calls “underemployment.”
The changes to shareholder arrangements are because HMRC wants more information so that it can ensure that shareholders in owner managed businesses pay the right tax. This extra information will also give it a better basis for making decisions about tax and government support measures.
HMRC believe the additional work required will be minimal arguing that the additional data HMRC will collect is in areas where taxpayers already hold the data or provide it on a voluntary basis through the tax system.”
However, there’s scepticism among some key professional bodies. Many are already asking why this data collection change is being introduced.
They’re querying whether it’s important and useful enough to warrant the extra time that many people will have to devote to giving HMRC the extra data that it’s demanding.
On the subject of employee hours worked, for instance, the Chartered Institute of Taxation says:
“We are unclear why HMRC are collecting this information and what they are going to use it for… We also remain concerned that gathering this additional data and providing it to HMRC will place significant extra administrative burdens on some employers. The figures in HMRC’s revised impact assessment look significantly underestimated.”
As an employer, you’ll need to be ready for any additional workload.
Payroll and HR software can help automate and speed up processes when it comes to recording hours worked.
It can save time and money as you and your teams have accurate, updated information to hand. It can also ensure that you’re automatically complying with the latest regulations.
The Association of Taxation Technicians (ATT) is also concerned about the new changes relating to self-employment. “Identifying the precise start date of trading is not always straightforward,” it says.
It also calls to attention the possibility of penalties for either unknowingly or accidentally declaring incorrect dates:
“…now that notification is compulsory, we hope that there will be no sanction (even though there is provision for one) in situations where… either the originally reported date had been entered on the return after taking proper care or where no overall change in the individual’s tax liability resulted from the initial adoption of a date that was then found to require amendment.”
Here, too, accounting software, this time supporting self-employment, can be increasingly useful. You can send out invoices quickly and easily and the system can keep track of which clients have paid and when the money arrives in your account.
You can connect it directly to all of your bank accounts so there’s no need to waste time with spreadsheets. It will even chase overdue invoices for you.
You can also pay invoices quickly and easily, uploading them directly onto your accounting software system. You’ll be able to see easily the start and end dates of your self-employment so that you can submit them to HMRC on your Self Assessment return.
The end result of this is that you’ll be able to produce almost all the figures and details that HMRC wants without having to do manual calculations and relying on spreadsheets.
What do these changes mean for employers?
As an employer, you’ll need to be aware of the implications for your HR systems and processes of gathering, validating, and reporting the additional data on hours worked now required by HMRC.
You’ll need to check that you’re capable of carrying out this analysis and that you can access this information quickly, easily, and accurately.
The consultation makes an explicit link between HMRC having specific information about the actual hours that your employees work and the enforcement of the enhanced National Minimum Wage (NMW).
“Measures that strengthen NMW enforcement against deliberately non-compliant employers are to be welcomed,” according to Eloise Knapton, head of employer reward services at KPMG.
“But otherwise compliant employers might increase their risk of being selected for a risk based NMW review (with the associated costs in terms of management time and potential reputational risk) if they fail to report accurate hours.
“It’s therefore important for compliant employers to ensure they do not inadvertently increase their NMW risk profile through inaccurately reporting hours worked when the new RTI reporting obligations are introduced.”
What do the changes to HMRC data collection mean for payroll agents?
As with employers, payroll agents should aim to ensure that their processes and software are ready for 6 April 2025. HMRC currently cites this date for the changes to come into force, but it has not been officially confirmed.
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If you’re a payroll agent, you’ll need to start talking to clients now to ensure that they’re aware of these changes.
As a payroll agent, you’ll also need to check that your systems are up to date and capable of handling these increased requirements for relevant data.
Using the latest payroll technology can help speed up systems, improve accuracy, and reduce costs.
The significance of these changes for self-employed taxpayers
From January to March 2024, 4.25 million people were classed as self-employed, according to government figures. Many of them could be impacted by the changes to HMRC data collection.
Essentially, you’ll have to disclose your self-employment’s start and end dates. An extra field is likely to be added to the self-employed supplementary Income Tax Self Assessment returns.
These changes and the need to supply extra information may well mean keeping more accurate records than you’ve done in the past, ready for the changes to potentially come into force in April 2025.
It’s worth taking action now to check these dates and to ensure that you’re clear on the details. Again, accounting software can help save time and effort here, allowing you to concentrate on your business and focus on your clients’ needs.
Currently, the draft legislation suggests a start date of April 2025. However, this is not yet set in stone until the statutory instrument is finalised.
Assuming the legislation does come into effect from at this time then as an employer you’ll will need to start recording and submitting the required information regarding hours worked from 6 April 2025.
However, if you’re self-employed or you’re a shareholders in owner managed businesses you won’t need to provide the additional information until you submit your 2025/26 Self Assessment tax return. This isn’t due until 31 January 2027.
Final thoughts on changes to HMRC data collection
Many of the details of these changes have yet to be finalised, and HMRC may tweak them as it receives feedback from professional bodies and other interested parties.
Although the Act has been passed, the new Labour government might amend the statutory instruments that provide the detail and start date of the measures.
Certainly, there is concern among many small companies and the self-employed, who will not be happy having to navigate increased bureaucracy.
There will be an additional burden of time taken up with manual tasks that aren’t related to serving clients or growing your business.
Getting expert advice from your accountant or business advisor and taking action sooner rather than later, will go a long way to making any adjustments.
Ensuring that your records are up to date and using the latest accounting tech can help you manage these changes as your business thrives.
