HMRC Reporting Changes for Employers and Agents in 2025/26
In March 2024, via legislation that is currently going through consultation, HMRC advised of three administrative changes to apply for tax year 2025/26. You may or may not have had your eye on these but it is worth clarifying the latest position with all the tax changes going on.
Please note: the first change listed, regarding the reporting of employees' hours data, was delayed according to a letter sent to software developers from HMRC on 15 August. More information on that can be found below.
1. The reporting of hours worked on each Full Payment Submission (FPS) via Real Time Information. Every time an employee is paid, the intention is that the FPS reports either the actual hours worked in the pay period or the contractual hours (expected requirement from April 2026 now)
2. The start and end dates of periods of self-employment on Self-Assessment tax returns. Currently, HMRC collects this information via questions on whether a business started or ceased trading within the tax year – and they are voluntary to complete
3. Information about dividends paid to individuals who are Company Owner-Managers (COMs). The tax return will require the separation of dividends between an individual’s own company or dividends from other sources
Why are these changes coming in?
HMRC claims that with this additional information they will improve the quality of the data that they hold for taxpayers resulting in ‘better outcomes for taxpayers and businesses, as well as improving compliance, resulting in a more resilient tax system’.
However, according to HMRC’s ‘impact’ statement on the draft legislation, for agents and taxpayers, collectively, the provision of this extra information (via the FPS and / or Self-Assessment tax returns) posed an initial transitional businesses cost of £67 million. This may mean activities such as education, advising clients and the cost of the additional data gathering and reporting. Plus, on-going costs are £19.6 million. HMRC’s costs and the impact on the Exchequer are estimated as £0.
HMRC made two announcements recently regarding the three proposals.
A reporting nightmare for payroll staff
For three measures that are set to improve the data that HMRC hold but impose a huge administration and cost burden on agents and taxpayers, it has been a concern to follow the progress of this legislation which was put up for consultation under the last UK Government and we are pleased to have clarity on:
Hours Worked
On 15 August 2024, HMRC wrote to software developers as follows:
‘Due to delays owing to the General Election and the lead-in time required to upgrade software and processes to prepare for implementation, employers will now not be required to start providing more detailed employees’ hours data through PAYE Real Time Information returns from April 2025. This requirement will not apply until April 2026 at the earliest. Final decisions on whether to go ahead with the regulations and any timelines will remain subject to decisions by the new government.
Further guidance on the above measures will be provided when available.’
So, this cost and administration burden (£58 million initially and £10 million on-going) has not gone away. It has been deferred. For anyone preparing payroll it is easy to see what an administrative nightmare this change will be and how unrealistic it is to implement. It is also very difficult to see what tangible benefit this will provide to HMRC or the government. The volume of data will be staggering and when will this be utilised in a government department that currently struggles to even answer the phones!
Information on Self-Assessment Tax Returns
Following the above, HMRC communicated as follows:
‘The expected implementation date for changes to Self-Assessment returns - start and end dates of self-employment and dividends paid to company owner managers - remains achievable for April 2025.
However, whether and when to proceed with implementing the regulations remains subject to decisions by the new government.’
So, this cost and administration burden (£9 million initially and £9.6 million on-going) may still happen for 2025/26 tax returns, due to HMRC by 31 January 2027. We will report any announcements when they are made, hopefully at or by the time of the UK Budget on 30 October 2024.
You will note that we have not made any comment about HMRC’s use of data that they already hold, only their desire for more data!