Policy paper

Changes to HMRC data collection

Updated 22 November 2023

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

This measure 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 intends to implement three specific new requirements via regulations and a further technical consultation. Firstly, employers will be required to provide more detailed information on employee hours paid via Real Time Information 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 of this measure 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.

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. To enable the collection of data included in this measure, the government committed to publishing draft legislation for technical consultation before formally introducing the changes through a Finance Bill.

Detailed proposal

Operative date

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

Current law

Current law is included in Section 8, 8A and 12AA of Taxes Management Act 1970 (TMA) (dividends and start and end dates) and in the Income Tax (Pay As You Earn) Regulations 2003 — Schedule A1 and Part 11 of the Income Tax (Earnings and Pensions) Act (ITEPA) 2003 (employee hours paid).

Proposed revisions

Legislation will be introduced in Finance Bill 2023-24 to amend Section 8 and 12 of the Taxes Management Act 1970 (TMA) which sets out what information must be included in tax returns.

New subsections 1I, 1J, and IK, will be inserted after subsection 1H of Section 8 and new subsections 1G, 1H, 1I, and 1J will be inserted after subsection 1F of Section 8A TMA 1970 and additionally new subsections 5F, 5G, 5H, and 5I will be inserted after subsection 5E of Section 12AA of TMA 1970 to require additional information to be included in personal, trustee and partnership returns for the purpose of the collection or management of tax.

The new sub-sections will include a power to enable HMRC Commissioners to make regulations to specify the information they consider relevant for the above purpose.

Legislation will be introduced to amend Chapter 6 of Part 11 of ITEPA 2003, to insert a new section 707A before section 708, to enable HMRC to specify in secondary legislation additional data that will be required from employers where HMRC Commissioners consider that information to be relevant to the collection and management of tax.

Summary of impacts

Exchequer impact (£ million)

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, 1.9 million PAYE-registered businesses including civil society organisations, and 900,000 businesses which include shareholders of an owner-managed business, who will be required to submit information to HMRC by 2026.

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 (£million)

	One-off impact	£million
Costs	Dividends paid to shareholders in owner-managed businesses	£9 million
Costs	Start and end dates of self-employment	negligible
Costs	Employee hours paid	£35 million
Savings	—	—

Estimated continuing impact on Administrative Burden (£million)

	Continuing average annual impact	£million
Costs	Dividends paid to shareholders in owner-managed businesses	£9 million
Costs	Start and end dates of self-employment	£600,000
Costs	Employee hours paid	Negligible (assuming all businesses are keeping records of hours paid and there is a one-off need to amend RTI processes in year 1)
Savings	—	—
Net impact on annual administrative burden	—	£9.6 million

The hours paid 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 Real Time Information (RTI) submission process they already follow. Most PAYE-registered businesses affected by this measure will see a small one-off increase in the cost of submitting their RTI data. HMRC will continue to refine cost estimates as we develop and implement the required changes.

Operational impact (£ million) (HMRC or other)

HMRC will implement a series of IT changes to support safe delivery of these three elements of enhanced data collection. These changes are currently estimated to cost between £5m and £6m 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.

Monitoring and evaluation

The measure will be monitored and assessed alongside other measures in the government’s wider package for data collection and sharing changes.

Further advice

If you have any questions about this change, please contact Stephanie Canonier by email: responsivenessdataconsultation@hmrc.gov.uk.