If you are an employer, recent changes to HMRC data collection will almost certainly impact your business.
You may also be affected if you are a shareholder or self-employed person. You must act quickly to ensure you comply with these new regulations.
Although controversial, they will come into force in the next two years.
HMRC expects the new legislation to impact: “1.2 million self-employed businesses per year, 1.9 million PAYE registered businesses including civil society organisations, and 900,000 businesses which include shareholders in an owner-managed business , which will be required to provide information to HMRC by 2026.”
In this blog you will learn more about:
What changes are there to HMRC data collection?
The information you need to provide to HMRC about both your income tax self-assessment and the real-time information returns (RTI) completed by you as an employer will change.
These new requirements and associated HMRC powers were introduced by the Finance Act 2024 in sections 8 and 12 of the Taxes Management Act 1970 (TMA).
They consist of 3 main strands:
- for employer
If you are an employer, you need to start providing more detailed information about your employees’ paid hours via Real Time Information (RTI) PAYE reporting.
Under (RTI), employers and pension providers must report to HMRC in real time in their Full Payment Submission (FPS) the income tax, National Insurance Contributions (NICs) and other payroll deductions they make. This means when or before you make payments to your employees or retirees.
The number of employee hours depends on whether your employee is paid at an hourly rate or through a contract that specifies a number of hours. It could also be a combination of both.
If you don’t have this information, you need to explain why you don’t have it. It is important to note that this change places the burden of reporting on you as the employer.
- For shareholders
If you are a shareholder in an owner-managed company, you must report the amount of dividend income you receive from your own company separately from any other dividend income you may receive from other stocks you own.
You must also state in your self-disclosure declaration what percentage you hold in your own company.
HMRC is adding new mandatory questions to the self-assessment tax return.
It asks for the name and registered number of the related company, the value of the dividends you receive from that related company and the person with the highest shareholding in it.
According to HMRC, a close company is a limited company with five or fewer “participants”. It could also be a limited company where all “participants” are also directors.
- For self-employed people
If you are self-employed, you must provide information about the start and end of your self-employment in your self-disclosure declaration. At the moment these questions are only voluntary.
Why is the government introducing these changes?
According to HMRC political goalThe aim is to “improve the quality of data collected by HMRC to deliver better outcomes for taxpayers and businesses and improve compliance, leading to a more resilient tax system.”
The aim, according to the government’s consultation on these changes, is to help it understand changes in the labor market.
In particular, ministers want to know more about staff working hours and the voluntary part-time work we do, as well as what it calls “underemployment”.
The changes to shareholders’ agreements come as HMRC wants more information to ensure shareholders in owner-managed companies pay the correct taxes. This additional information also provides a better basis for decision-making regarding tax and government support measures.
HMRC expects the additional work required to be minimal and argues that the additional data HMRC will collect will relate to areas where taxpayers already have the data or are providing it on a voluntary basis through the tax system.”
However, there is skepticism among some important professional associations. Many are already wondering why this data collection change is being introduced.
They question whether it is important and useful enough to justify the extra time that many people have to spend to provide HMRC with the additional data it needs.
On the subject of hours worked, for example: Says the Chartered Institute of Taxation:
“We are unclear as to why HMRC is collecting this information and what they will use it for… We remain concerned that collecting this additional data and providing it to HMRC will create a significant additional administrative burden for some employers. “The figures in HMRC’s revised impact assessment appear to be significantly underestimated.”
As an employer, you must be prepared for any additional workload.
Payroll and HR software can help automate and speed up processes when recording hours worked.
This can save time and money because you and your teams have accurate, up-to-date information. It can also ensure that you automatically comply with the latest regulations.
The Association of Control Engineers (ATT) is also concerned about the new changes in the area of self-employment. “It is not always easy to determine the exact start date of trading,” it says.
It also draws attention to the possibility of penalties for unknowingly or accidentally providing false data:
“…since notification is now mandatory, we hope that there will be no penalty (even if one is provided for) if…either the originally reported date was reported in the tax return after due diligence or if there is no change overall The individual’s tax liability resulted from the initial assumption of a date that then proved to need to be changed.”
Here too, accounting software, this time to support self-employment, can be increasingly useful. You can send invoices quickly and easily, and the system can track which customers have paid and when the money arrives in your account.
You can connect it directly to all your bank accounts, so you don’t have to waste time on spreadsheets. It even takes care of overdue bills for you.
You can also pay invoices quickly and easily by uploading them directly to your accounting system. You can easily see the start and end dates of your self-employment so you can report these to HMRC in your self-assessment return.
The end result of this is that you can produce almost all the figures and details that HMRC require without having to do manual calculations and rely on spreadsheets.
What do these changes mean for employers?
As an employer, you need to be aware of the impact on your HR systems and processes of collecting, validating and reporting the additional hours worked data now required by HMRC.
You need to consider whether you have the ability to perform this analysis and access this information quickly, easily and accurately.
The consultation makes an explicit link between having specific information from HMRC about your employees’ actual hours worked and enforcing the increased National Minimum Wage (NMW).
“Measures that strengthen the enforcement of the NMW against intentionally non-compliant employers are to be welcomed,” it said Eloise Knapton, head of employer premium services at KPMG.
“But otherwise compliant employers could 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 do not provide accurate hours.
“It is therefore important for compliant employers to ensure that they do not inadvertently increase their NMW risk profile by providing inaccurate information about hours worked when the new RTI reporting requirements are introduced.”
What do the changes to HMRC data capture mean for payroll professionals?
Like employers, payroll professionals should ensure their processes and software are ready for April 6, 2025. HMRC is currently quoting this date for the changes to come into force, but it has not been officially confirmed.
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If you are a payroll professional, you need to talk to your clients now to make sure they are aware of these changes.
As a payroll accountant, you also need to check whether your systems are up to date and can meet these increased requirements for relevant data.
Using state-of-the-art payroll technology can help speed systems, improve accuracy, and reduce costs.
What these changes mean for self-employed taxpayers
According to government figures, 4.25 million people were considered self-employed from January to March 2024. Many of them could be affected by the changes to HMRC data collection.
Essentially, you must disclose the start and end dates of your self-employment. An additional field is likely to be added to the additional self-assessment income tax returns for the self-employed.
These changes and the need to provide additional information may well require you to keep more accurate records than before, with the changes potentially taking effect in April 2025.
It’s worth taking action now to review this data and make sure you’re clear on the details. Again, accounting software can help save time and effort, allowing you to focus on your business and the needs of your customers.
The bill currently sets a start date of April 2025. However, this is only set in stone with the final version of the legal regulation.
Assuming the legislation comes into force at that time, you as an employer must start collecting and submitting the necessary information on hours worked from April 6, 2025.
However, if you are self-employed or a shareholder in an owner-managed company, you will only need to provide the additional information when you submit your 2025/26 self-assessment tax return. This is not due until January 31, 2027.
Final thoughts on changes to HMRC data collection
Many details of these changes still need to be finalized and HMRC may adjust them as it receives feedback from professional bodies and other interested parties.
Although the law has been passed, the new Labor government could change the legal provisions setting out the details and start date of the measures.
There are certainly concerns among many small businesses and self-employed people who will not be satisfied with the increasing bureaucracy.
Additional time is spent on manual tasks that have nothing to do with serving customers or growing your business.
Seeking the expert advice of your accountant or business advisor and taking action sooner rather than later can go a long way in implementing adjustments.
Ensuring your records are up to date and using the latest accounting technologies will help you manage these changes while your business thrives.
