In a welcome move for businesses across the UK, HMRC has recently announced the withdrawal of its plans to require employers to report detailed employee hours data through Pay As You Earn (PAYE) Real Time Information (RTI) returns. This decision will come as a relief to many small businesses who were concerned about the increased administrative burden this requirement would bring.

The Background

Initially proposed as part of HMRC’s data transformation initiatives, the requirement was set to take effect from April 2026. The plan aimed to collect more detailed information on employee working hours to ensure accurate tax and National Insurance contributions. However, after extensive feedback from businesses and industry experts, HMRC has decided to abandon this proposal.

What was proposed?

The draft Income Tax (Pay As You Earn) (Amendment) Regulations 2024 would have required employers to report:

• Actual hours worked by employees in each pay period.
• More granular data on working patterns and overtime.

This was a significant shift from the current system, which only requires reporting of normal hours worked in broad categories.

Why the U-turn?

HMRC’s decision to scrap the proposal came after listening to concerns raised by businesses and acknowledging the potential administrative burden. Key issues highlighted included:

• Significant costs associated with updating payroll systems.
• Challenges in accurately tracking and reporting detailed hours for each employee.
• Increased workload for payroll and HR departments.
• Potential compliance issues due to the complexity of the new requirements.

What’s Next?

While this particular requirement has been shelved, it’s important to note that HMRC remains committed to improving data collection and tax reporting processes. Other initiatives, such as Making Tax Digital for Income Tax Self Assessment (ITSA) and the digitalisation of business rates, are still moving forward.

Our view…

We were pleased to hear HMRC’s decision. They finally listened to some of the feedback they were receiving! 

This would have been a challenging change to implement in small businesses, for little tangible benefit. Abandoning the requirement is a good decision.