HMRC to demand more details in three areas

HMRC, HR, Limited Company, Personal Tax, Sole Trader,

It’s been announced that new requirements for reporting working hours, shareholdings and dividends, as well as self-employed trading dates, will come into effect from 2025/26 or a later period.

Three new data requirements

In July HMRC confirmed that employers and business owners will be required to provide data for the following:

  1. The exact hours worked by each employee.
  2. Who runs their own company, and the dividends they receive from it.
  3. When periods of self-employment start and end.

Draft legislation that has been published that provides the opportunity for regulations that adjust the personal tax return, trustee’s return and RTI returns, but as yet there is no detail. Until that is available, we won’t know exactly what HMRC will want to see.

The draft legislation shows the new regulations will come into effect for periods beginning in 2025/26. It refers to this date as the earliest the rules could come in though, so they could be implemented later if HMRC decides it needs more time to get its own systems set up accordingly.

1 Employee Hours

The required employee working hours information will be submitted by employers for each pay period through amended RTI Returns.

The existing FPS already includes a report of the hours worked per week by each employee but currently only in four broad bands that align with the information needed to confirm working tax credit eligibility. 

The new requirement will be for employers to report the contractual hours worked, where that is deemed to be ‘relatively stable’ (a new term which hasn’t yet been defined) such as for salaried team members. Where someone is hourly paid, or the hours are irregular, employers will need to submit the actual hours.

Employers already have to record hours worked to ensure the National Minimum Wage (NMW) has been paid, so it’s felt the extra reporting won’t create a significant additional burden. It is acknowledged though that there will be an impact for employers to amend their systems to report the detail. 

A spokesperson for the Chartered Institute of Taxation (CIOT) has voiced the feelings of many who have seen the new guidance, saying that the justification for reporting the additional detail has not been explained.

2 Dividends and shareholding percentages

In common with the reporting of actual hours worked, above, HMRC has not explained why it needs to know how dividend income is split between that from a taxpayer’s own company and other sources. 

Industry commentary suggests it may be used with the reported percentage ownership of the business to target personal service companies that could be implementing IR35 rules incorrectly, but this hasn’t been explained by HMRC.

This dividend and shareholding information will be required from directors of all UK close companies, where five or fewer individuals have ownership or control. 

3 Self-employed start and end dates

There are already boxes on the self-employment pages of the Tax Return, but if the information isn’t completed in future, HMRC will be able to impose a £60 penalty. 

Given these dates can be quite difficult to categorise, for example if a business grows from a hobby, HMRC has said that it will provide clear definitions before this change takes effect. This clarity will also be needed around the start of closure of a trade or lettings business for MTD ITSA.

As ever, as the guidance is updated and more details emerge, we’ll keep you posted! 

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