HMRC has this week published a new consultation, entitled ‘Improving the data HMRC collects from its customers’. The consultation is open to any interested party, until the 12th October 2022.

Why increase the data collected anyway?

HMRC describes the intention of the consultation as follows:

‘The consultation document proposes a number of potential options for improving the range of data HM Revenue and Customs (HMRC) collects, uses and responsibly and safely shares across government. We want to ensure that the data we hold gives us as accurate and up to date picture of citizens and businesses to help build a trusted, modern tax administration system and improve government policy making.’

What data are they likely to add?

• The Business Sector of self-employed people
• The occupation of employees and self-employed
• The location of an employment or a business
• The hours employees work
• Dividends paid to shareholders in owner managed businesses
• The start and end date of self employment

Submission of the data in these categories is mainly for the benefit of HMRC or the government, with little likelihood of any benefit to the individual or business. The provision of the data though falls to the taxpayer, adding yet more administration and a greater compliance burden.

Let’s look at each area in turn…

1. Business Sector
   • Whilst a company must declare and annually update their Business sector through the use of SIC codes and Companies House, there is no similar requirement for a self employment. The business description box on a tax return is voluntary, and a free text box, so there is little opportunity for HMRC to capture the data.
   • This data would help HMRC identify businesses operating in high risk sectors for compliance checks or inspections.
   • The data could be used for targeted communications, and may have been helpful during the pandemic.
   • HMRC are proposing to make the Business Description field on a tax return compulsory, and to require self employed to use SIC codes to categorise their trade.
2. Occupations
   • HMRC have no way of capturing employee occupations. They claim that collecting this would enable them to identify skills shortages by area, and would enable employers to understand skills and training needs.
   • HMRC are proposing the addition of a compulsory field on payroll Real Time Information (RTI) returns to include Standard Occupational Classification codes (SOC) similar to the SIC codes mentioned above. This would be updated if an employee joins, leaves or changes role.
   • Self Employed taxpayers would use the same SOC codes on their Tax Returns. The addition of this code would be mandatory.
   • Our view is that employers already know the occupations of their employees, and can decide training needs without HMRC input. Knowing where you have skills around the country doesn’t make them relevant if there is no demand for them, so we’re unconvinced by this one!
3. Location
   • HMRC currently has a postal address for every business, but this may not be the trading address, nor does it tell them whether the address is a single location or part of a wider network of locations.
   • HMRC says that it needs to know where the business activity takes place, so that it can identify compliance risks that may apply.
   • A mandatory addition to the RTI forms would include a two line address for every employee to report their usual working address. A new field would be created to cover contractors or itinerant workers.
   • Current self employed submissions are deemed sufficient.
   • This explanation gives no detail of any benefit to employers of this additional burden.
4. Hours worked
   • RTI forms already capture the band of hours an employee works, as part of the requirements linked to working tax credit claims. Where pay is affected by the number of hours worked, that total must be shown on the payslip, but where workers receive a salary, there is no requirement to show the hours worked.
   • HMRC claims that it needs to be able to identify workers on zero hours contracts, and that extra data will allow them to see where National Minimum Wage rates have been ignored.
   • The proposal is that the worked hours bands are replaced on the RTI return with contractual hours per employee and the ‘other’ band on the RTI submission should be split out to explain why pay isn’t standard.
   • We cannot see how the proposals will solve the issues higlighted, and certainly can’t see any benefit for the employer.
5. Dividends
   • Tax Returns don’t allow HMRC to see who operates through their own company, and what dividends they receive from that company, and HMRC can’t currently identify tax-driven incorporations.
   • HMRC would like to see the Income from Self Employment additional Tax Return pages amended to make the existing ‘Close Company’ box mandatory.
   • HMRC are proposing that dividends received from a close company in which a taxpayer owns shares should be declared separately.
   • Again, these changes offer benefits to HMRC but none to the taxpayer, other than more compliance considerations.
6. Start and End dates
   • HMRC would like to have start and end date information for self employed businesses for use by its compliance teams, and also to enable them to provide more support in the early stages of a business.
   • That sounds great, but the proposal to gather this information through the mandatory use of the start and cessation fields on a tax return won’t provide accurate information. A Tax Return can be submitted beyond the first year a business starts trading, making this approach both burdensome and inaccurate.

So what else might the data be used for?

Having identified that much of this data won’t fulfil the stated needs, it suggests the requirement isn’t in fact for tax purposes!

The data is therefore more likely to be used for policy making by government. These changes would move the primary goal of the payroll department away from paying people promptly and accurately. Instead the payroll department becomes an extension of government and a source of data for them, whilst complying with significant updates to systems and processes.

The separate impact of the self employed of the proposals outlined in the consultation is significant, but once again, for little to no benefit.

How can you have your say?

An open consultation is an opportunity for affected parties to submit their views around the subjects it contains.

In this case, the proposed changes will affect all self-employed taxpayers, employers, employees, as well as tax agents like us!

If you’d like to know more about the consultation, you can find out more about the proposals and their justifications by following this link, which includes details of how you can submit your views should you wish to do so.

If you’d like to chat through any of the proposals, or anything else regarding your affairs, please do get in touch. We’ll of course keep you up to date with any modifications to submissions that may take affect once the consultation is completed!