HMRC are demanding more data from businesses no earlier than 2025/26 as scheduled. New requirements will be around reporting working hours, shareholdings and dividends relating to owner-managed companies, as well as self-employed trading dates. These new measures are likely to cause a huge headache for business owners. This will add to the already ever-present stresses of the business market.
HMRC’s aim is to improve the quality of the data collected. This is to better provide outcomes for taxpayers and businesses, as well as improve compliance all around. The potential of this measure has been written on the wall for some time. However, the benefits of obtaining more data by HMRC significantly outweigh the benefits to businesses or individuals.
We explain the process of the new measures, who they will affect, and what is likely to be increasingly required by HMRC in a matter of years…
What Data Requirements Will HMRC Introduce & When?
The new proposals put forward by HMRC when actioned will necessitate businesses to modify the information they furnish to HMRC. This will be through both income tax self-assessment and real-time returns conducted by employers. HMRC has outlined its intention to introduce three distinct novel requirements through regulations, accompanied by an additional technical discussion. It’s worth noting that until the official policy regulations are set out, it’s impossible to comprehensively know exactly what the taxpayer will have to provide.
To begin with, employers will need to provide more comprehensive particulars. This will be around regarding employee work hours as part of Real Time Information PAYE reporting. Secondly, individuals holding shares in owner-managed enterprises will be mandated. This will be to disclose the sum of dividend income received from their respective companies separately, distinguishing it from other dividend income. Moreover, they must specify the percentage of ownership they possess in their own companies within their Self-Assessment submission. Lastly, self-employed individuals will be obligated to provide details concerning the commencement and conclusion dates of their self-employment within their Self Assessment return. The draft legislation outlines all of this.
Who Will The New HMRC Data Requirements Affect?
Shareholders in owner-managed businesses, self-employed, employers, tax agents, tax, or payroll software providers will all be affected. This measure is expected to have an estimated impact on up to 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.
The self-assessment requirements will predominantly impact on small businesses. Likewise, PAYE requirements will impact on all businesses with average costs per business higher for large businesses. One-off costs will include familiarisation with the new requirement, staff training and updating software or internal processes. Some continuing costs will arise from businesses keeping records of relevant information and providing information to HMRC of any relevant changes.
The government believes that the extra reporting of employee hours should not impose a great burden on employers. This is because they are already required to record hours worked to ensure the national minimum wage (NMW) has been paid. In similar vein, information on self-employed start and end dates are already requested on the self-employment pages of the tax return. Therefore, the only real change for self-employed will be to mandate the completion of those boxes. Should the taxpayer not provide this data, then HMRC will impose a £60 penalty fine for failure to disclose.
Why Could HMRC’s New Data Requirements Be An Issue?
The backlash surrounding dividends and shareholding percentages have proven to be the loudest cause for concern. The rationale behind HMRC’s request for a distinction in dividend income origin, between that originating from the taxpayer’s personal company and dividends from external origins, remains unclear.
Furthermore, HMRC’s insistence on taxpayers specifying the percentage of shares they hold in their respective companies is possibly due to the data collection aimed at identifying potential inconsistencies in the application of IR35 regulations, particularly in personal service companies. HMRC have verified that only shareholders of closely held companies, who are also obliged to file a tax return, will be requested to provide the breakdown of dividends and shareholdings.
Many questions have been asked regarding HMRC wanting to collect data which arguably doesn’t support the process of collecting tax accurately. It could likely transpire to a rather lax attitude from HMRC in accurately obtaining this data, inevitably leading to more inconsistency in records and a rather ironic outcome. HMRC’s objective aim is to improve compliance yet this potentially could do just the opposite. With government departmental cuts across the board, not least in HMRC, can it really be expected that HMRC will invest more resources into collating this data if it doesn’t actually support more tax revenue?
With the new data regulations not being introduced until 2025/26 at the very earliest, business owners don’t need to rush into an immediate panic. However, as stated there is much cause for concern around the new data collection involving employee hours, self-employed start and end dates, and shareholder percentages and dividends income.
Nordens’ Tax Manager, Adam Truluck, believes, “HMRC wanting more data from businesses comes as no surprise as it has been something they have slowly been increasing for some time now. By obtaining this data they will be able to root out more fraudulent activities and buy a stop to tax avoidance. This will most likely involve a lot of admin work from the business side to be able to implement. If past experiences are anything to go by, there will no doubt errors in HMRC’s new system whichever form it may take. However, we are here to help guide any business through these new procedures and we are well versed on whatever the final rules brought in are.”
We hope this outlined to you HMRC’s proposals for new data collection, and how this will impact the public. If you’d like to know any further information, or anything accounting related, please do not hesitate to get in contact with us at Nordens, where one of our trusted advisors would be happy to talk you through your query.