In a significant move to bolster tax compliance and curb tax evasion, HMRC will be granted enhanced powers to collect crucial financial data from owner-managed businesses and employers, set to take effect from April 2025.
What is changing?
One of the key changes includes new rules on dividend disclosure, specifically impacting anyone involved with an owner-managed business.
Under these rules, directors will be required to utilise their self-assessment tax return to provide a comprehensive breakdown of their dividend income.
This breakdown must distinguish dividends received from their own companies and other sources.
Additionally, directors must specify their percentage shareholding in their respective companies. HMRC will facilitate this process by requesting the relevant information through the SA102 form.
Also, employers will experience increased reporting responsibilities concerning their workforce.
Starting in tax year 2025-26, they will be mandated to furnish detailed information about the number of contracted hours worked by individual employees through the real-time information PAYE reporting system.
The objective behind this data collection is to strengthen government support for the labour market.
During the initial consultation in 2022, HMRC proposed an even wider range of data collection, including the reporting of employee job titles, precise working locations, and specific types of work undertaken by self-employed individuals.
However, stakeholders expressed concerns about the potential administrative burden and questioned the necessity of collecting certain types of data.
As a result, HMRC revised its approach and opted for a more measured and proportionate strategy.
The final draft legislation focuses on gathering essential financial information that taxpayers already hold, avoiding unnecessary red tape and administrative complexities.
What are the obligations?
In response to the revised plans, taxpayers who are self-employed will also be required to provide information on the start and end dates of their self-employment using their self-assessment tax return.
This additional data will contribute to a more accurate understanding of the self-employed sector’s dynamics and aid in tax assessment.
The original proposal included drilling down into the business sector activities of self-employed individuals, collecting data on employee occupations in companies, and obtaining location-based data on employee working arrangements.
Critics argued that these measures would place undue pressure on taxpayers already operating in a challenging trading environment.
To strike a balance between data collection and taxpayer burden, HMRC decided to leverage existing data to create a comprehensive profile of the self-employed sector.
This information will enable HMRC to build a broader picture without resorting to excessive data collection.
To ensure compliance with the reporting requirements, the legislation introduces a penalty of £60 for failure to adhere to the new regulations.
HMRC aims to strike a delicate balance between obtaining relevant data for accurate tax assessment and respecting taxpayers’ concerns about data privacy and administrative burdens.
By empowering HMRC with additional powers and streamlining the data collection process, the government aims to foster tax compliance and address tax evasion effectively.
These measures form part of the broader efforts to strengthen the tax system, particularly in the wake of challenges posed by pandemic-related delays and disruptions to investigations activities.
How we can help
At Williamson & Croft, we are committed to providing comprehensive and expert guidance to our clients in navigating the upcoming changes to HMRC’s dividend and hour reporting regulations.
With the implementation of these new rules approaching, we understand that owner-managed businesses and employers may face challenges in ensuring compliance and meeting the reporting requirements.
Our team of experienced accountants is well-versed in tax legislation and HMRC’s evolving regulations. We will work closely with our clients to understand their unique business structures, dividend income, and workforce data to ensure accurate and timely reporting. Our tailored approach will assist clients in efficiently splitting dividend income, calculating shareholdings, and compiling detailed employee hour records.
By leveraging our expertise and in-depth knowledge of the tax landscape, we aim to minimise the administrative burden and help clients avoid penalties for non-compliance.
Contact us today for further information.