Open consultation

(Draft) Statutory Instruments impacts: improving the data HMRC collects from its customers

Published 14 March 2024

Who is likely to be affected 

Shareholders in owner-managed businesses, the self-employed, employers, tax agents, tax, or payroll software providers.   

General description of the measure 

These draft statutory instruments will require businesses to change the information they provide to HMRC via both income tax Self Assessment and real-time returns completed by employers. HMRC is implementing 3 specific new requirements via regulations. Firstly, employers will be required to provide more detailed information on employee hours worked via Real Time Information (RTI) PAYE reporting.

Secondly, shareholders in owner-managed businesses will be required to provide the amount of dividend income received from their own companies separately to other dividend income, and the percentage share they hold in their own companies via their Self-Assessment return. Finally, the self-employed will be required to provide information on start and end dates of self-employment via their Self-Assessment return. 

Policy objective 

The objective is to improve the quality of the data collected by HMRC to provide better outcomes for taxpayers and businesses, as well as improving compliance, resulting in a more resilient tax system.  

The additional data HMRC will collect is in areas where taxpayers already hold the data or provide it on a voluntary basis through the tax system. For employee hours, for example, employers whose contract specifies a number of hours will only be required to provide the hours stated in that contract for the relevant period, and any additional extra paid hours of overtime. 

Background to the measure 

The government published a consultation in July 2022 proposing a number of potential options for improving the range of data HMRC collects, uses, and responsibly and safely shares across government.   

The government published a summary of responses to the consultation in April 2023 setting out plans to progress less burdensome options where customers already hold the data or provide it on a voluntary basis through the tax system.  

These 2 statutory instruments are being laid by HMRC with the objective of improving the quality of the data collected by HMRC to provide better outcomes for taxpayers and businesses, as well as improving compliance, resulting in a more resilient tax system. 

Detailed proposal 

Operative date 

The Regulations will have effect from no earlier than the start of the tax year 2025 to 2026. 

Current law  

Under paragraph 21 of Schedule A1 to the Income Tax (Pay As You Earn) Regulations 2003 (PAYE Regulations), employers are required to submit this data to HMRC through the RTI return in the form of bands related to the number of hours (A to D). For workers on zero hours contracts, or anyone else without regular working patterns, employers can select a fifth band, E), for ‘other’.  

Proposed revisions 

The Income Tax (Pay As You Earn) (Amendment) [(No. ***)] Regulations 2024 will be introduced with effect from April 2025  

The Regulations amend Schedule A1 to the Income Tax (Pay As You Earn) Regulations 2003. Regulation 2(2) replaces the existing information requirement at paragraph 21 of Schedule A1 with 2 new requirements. The first is that the number of hours the employee has worked in respect of the payment, determined in accordance with paragraph 21 as substituted, must be included in the return. The second is that, in certain cases, a description must be reported in relation to the payment.   

The Income Tax (Additional Information to be included in Returns) Regulations 2024 will be introduced with effect from April 2025.  

The regulations specify additional information which taxpayers are required to include in certain tax returns which they may be required to make and deliver to HMRC. Regulation 2 requires the inclusion, in personal returns, trustee’s returns and partnership returns, of the dates of commencement and cessation of business activities. Regulations 3, 4 and 5 require the inclusion, in personal returns, of information concerning directorships, close companies and dividend income.  

Summary of impacts

Exchequer impact (£m) 

2023 to 2024	2024 to 2025	2025 to 2026	2026 to 2027	2027 to 2028	2028 to 2029
NIL	NIL	NIL	NIL	NIL	NIL

This measure is not expected to have an Exchequer impact. 

Economic impact 

This measure is not expected to have any significant macroeconomic impact.   

Impact on individuals, households, and families 

The measure has no impact on individuals as it only impacts on businesses. There is no impact on family formation, stability, or breakdown. 

Equalities impacts 

It is not anticipated that there will be additional impacts on those in groups sharing protected characteristics. 

Impact on business including civil society organisations 

This measure is expected to have an estimated impact on up to 1.2 million self-employed businesses each year, 2.0 million PAYE-registered businesses including civil society organisations, and around 0.9 million directors of owner-managed businesses, who will be required to submit information to HMRC by 2025.  

Self Assessment requirements will predominantly impact on small businesses, whilst 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.   

Better understanding of customers’ circumstances helps to improve customer experience, enhancing interaction with HMRC, by reducing unnecessary enquiries, and ensuring HMRC can better understand their circumstances when contacted. 

Estimated one-off impact on transitional Businesses costs (£m) 

	One-off impact	(£m)
Costs	Dividends paid to shareholders in owner-managed businesses	£9m
Costs	Start and end dates of self-employment	negligible
Costs	Employee hours	£58m
Savings	–	–

Estimated continuing impact on Administrative Burden (£m) 

Continuing average annual impact	(£m)
Costs	Dividends paid to shareholders in owner-managed businesses	£9m
Costs	Start and end dates of self-employment	£0.6m
Costs	Employee hours	£10m
Savings	–	–
Net impact on annual administrative burden	–	+£19.6m

The employee hours estimate is based on assumptions about data employers are already required to keep, to satisfy National Living Wage and National Minimum wage rules, and how easy it would be to include that data in the regular RTI submission process they already follow. Most PAYE-registered businesses affected by this measure will incur one-off costs of adapting processes to submit their RTI data and small ongoing costs.  

Operational impact (£m) (HMRC or other) 

HMRC will implement a series of IT changes to support safe delivery of these 3 elements of enhanced data collection. These changes are currently estimated to cost between £5 million and £6 million overall to deliver. This figure is expected to fall once delivery commences and IT requirements are refined. 

Other impacts 

No other impacts have been identified.