Changes to HMRC data collection requirements – how will this impact taxpayers?
Following HMRC’s consultation on improving the data it collects from its customers, we analyse the proposed changes which would grant it additional powers to acquire information.
Draft legislation announced on legislation day (‘L-day’) 2023 will provide the Commissioners of HMRC with additional powers to require information from employers, as well as additional information in self-assessment tax returns of individuals, partnerships, and trusts. In her written statement on 18 July 2023, Victoria Atkins (Financial Secretary to the Treasury) argued that this would improve the quality of the data collected by HMRC, provide better outcomes for taxpayers and businesses, improve compliance, and result in a more resilient tax system.
The draft legislation follows an HMRC consultation on improving the data it collects from its customers in July 2022. Along with other professional bodies, ICAS provided feedback to the consultation and the government responded on tax administration and maintenance day 2023.
Following the consultation, the draft legislation extends the scope of section 8 of the Taxes Management Act (TMA) 1970 (for individuals and trustees) and section 12AA of TMA 1970 (for partnerships), allowing the Commissioners of HMRC to introduce regulations. These regulations can require the provision of information that the Commissioners consider relevant for the purpose of the collection and management of income tax, corporation tax and capital gains tax. Failure to comply with any regulations introduced under the above sections will result in a fixed rate penalty of £60.
The draft legislation also introduces new powers under the Income Tax (Earnings and Pensions) Act (ITEPA) 2003 which may require additional information from employers as part of a PAYE return. As above, this is limited to any such information that the Commissioners consider relevant for the purpose of the collection and management of income tax, corporation tax and capital gains tax.
Changes to TMA 1970 and ITEPA 2003 will take effect from the 2025/26 tax year onwards. HMRC has not released draft regulations at this stage, but has given an indication as to how the new powers will initially be used.
Additional information from employers
HMRC has advised that it will require employers to provide additional information on the hours worked by employees in real time information (RTI) submissions. Employers are currently required to select a banding of their employee’s working hours in RTI full payment submissions, HMRC currently uses this to corroborate universal credit claims.
Instead of the current approach, the proposal is for an exact number to be required of either the contractual hours worked (where working hours are reasonably stable) or actual hours worked by hourly paid employees.
In our response to the consultation, we highlighted the logistical concerns of data being held in different business departments (most commonly human resources and payroll) and in a number of different systems. However, the government has argued that employers are already required to keep records of the hours their employees work to satisfy minimum wage legislation and, in some cases, display this information on payslips. Only time will tell how this change will impact on employers.
Additional information from self-employed taxpayers
At present, there is a box in the SA103 pages of the self-assessment income tax return for taxpayers to enter the dates the business started and ceased trading. Similar boxes can be found on the SA800 for partnerships and the SA901 for trusts.
Completion of these boxes is currently optional. HMRC proposes for this to be mandatory from the 2025/26 tax year onwards. The dates should normally be fairly easy to obtain, and in our feedback to the consultation we felt that this should not create significant problems to taxpayers or their agents in most cases.
Additional information from shareholders in companies that are owner managed businesses
HMRC has indicated that, from the 2025/26 tax year onwards, it will require shareholders in companies that are owner managed businesses to separately disclose their dividend income from their other dividend income, as well as their percentage shareholding in the company. We understand this is likely to be on the SA102 employment tax pages, which would suggest that the information would only be required by directors, in line with our feedback to the consultation.
The definition of what is considered to be an owner managed business for this purpose is still to be confirmed, but we expect it to be similar to the existing legislation for close companies. Section 439 CTA 2010 defines a close company as one controlled by its directors or by five or fewer participators.
How HMRC will use the information on dividend income may become clearer in due course. However, we understand that HMRC will use the additional information on owner managed businesses to monitor overall tax compliance and it will also enable the government to have a better understanding of how the owner managed sector operates when considering future tax and business support measures.
Let us know your views
We welcome members’ input to inform our work on consultations or other tax-related matters – email us to share your insights and feedback. ICAS responds to many tax calls for evidence and consultations, as well as producing tax policy papers and reports. We also regularly attend meetings with HMRC at which service levels, delays and other issues are discussed, and we raise problems being encountered by members.