HMRC will be given extra powers to collect information about the amount of dividend payments earned by owner managed business directors while employers will have to report the number of hours worked by individual employees.
Draft legislation has been released that includes provision for regulations to be laid that adjust the personal tax return, trustee’s return and RTI returns.
From April 2025, there will be new rules on dividend disclosure. Anyone involved with an owner managed business will need to use their self-assessment tax return to split out the amount of dividend income received from their own companies from other dividend income, and the percentage share they hold in their own companies.
Employee
The draft legislation confirms that the changes will come into effect from the tax year 2025-26 and employers will be required to provide detailed information about how many contracted hours are worked by employees. The employee working hours data will be reported by employers for each pay period on RTI returns.
The government believes that this extra reporting should not impose a great burden on employers as they are required to record hours worked to ensure the national minimum wage (NMW) has been paid. The impact assessment includes a one-off cost of £35m for employers to amend their systems, which works out at just £24 per UK employer.
While collecting data on hours may be useful for HMRC for certain tax purposes, it is uncertain that it will offer any direct benefits to businesses and taxpayers.
Self-employed
Taxpayers who are self-employed will need to provide information on the start and end dates of their self-employment using their self-assessment tax return.
This information is already requested on the self-employment pages of the tax return, so the only change will be to mandate the completion of those boxes. If the taxpayer does not provide this data HMRC will be able to impose a flat £60 penalty.
A clear definition of when a trade or letting business starts and closes for tax purposes will also be essential for the smooth operation of MTD ITSA.
Dividends
HMRC has not been clear about why it needs a breakdown of dividend income between that generated from the taxpayer’s own company and dividends from other sources. As it also wants the taxpayer to report what percentage of the company’s shares the individual owns, leads to assume that this data grab is designed to target personal service companies which may not be applying the IR35 rules correctly.
HMRC has confirmed that only directors of close companies will be required to provide this dividend breakdown and shareholding data.
Shelved requirements
However, HMRC had to scale back their initial plans after receiving pushback from stakeholders in the original consultation in 2022. As a result, the tax authority has dropped plans to collect data on employee job titles, employees’ precise working location and details about locations of business’ offices and factories based on a geographic location, as well as details about the precise type of work undertaken by individual self-employed workers.
The draft legislation indicates the new regulations will take effect for periods beginning in the tax year 2025-26. Until we see those regulations, we won’t know exactly what the taxpayer will have to provide.
There will be a penalty of £60 for failure to comply with the legislation.
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