HMRC have opened a consultation ‘Improving the data HMRC collects from its customers’, to explore options for improving the range of data collected directly from taxpayers. Proposals include measures requiring director/shareholders of close companies to separately identify, on their tax return, the dividends they receive from their company. 

The consultation published identifies six specific areas where data collection by HMRC may be improved due to apparent current weaknesses.

The business sector of the self-employed

Business sector data currently collected by HMRC comes from a range of sources, most of which are voluntary.

Two options to improve inaccurate, incomplete or out-of-date data in respect of the self-employed are proposed:

  1. Making the 'business description' field in the self-assessment tax return compulsory.
  2. Changing the 'nature of business' field in the tax return to Standard Industry Classification (SIC) codes, as currently used by Companies House.

The occupations of employees and the self-employed

HMRC does not currently collect data on the occupation. 

  • For employees, it is proposed to add a field to Real-Time Information (RTI), requesting the occupation of each employee. 
    • Phase 1 would be the initial collection of this data from the employed population to create a baseline. 
    • Phase 2 would be the ongoing updating of records as employees join organisations, leave, or change occupations. 
  • For the self-employed, the government’s proposal is to add a field to the self-employed supplementary tax return page asking for ‘occupation or trade’, or similar.

The location of an employment or a business

The government would like HMRC to collect better location data to provide a detailed and reliable understanding of where economic activity is based.

Current data held does not always correspond to the address where real economic activity is taking place.

  • The preferred option is to require employers to give HMRC the office location or normal work base of their employees, via RTI. 

It is noted that this would not cover businesses without employees.

In addition, not all employees have a standard work address. In this case, a new field may be added to indicate where the worker has no standard work address, such as for Agency workers or to accommodate employees with multiple work addresses.

Ways to improve location data from the self-employed have been considered and may be returned to in future. HMRC already have address information on the self-employed, which in most cases should correspond to where their business is based.

The hours employees work

HMRC does not currently hold detailed information on hours worked by employees.

Employers are currently required to give banded information on hours worked, through the RTI return:  

  • Band A: up to 15.99 hrs
  • Band B: 16-23.99 hrs
  • Band C: 24-29.99 hrs
  • Band D: 30 hrs or more
  • Band E: Other

HMRC have identified two possible areas for improvement, either or both could be pursued:

  1. Replace bands A to D with a numerical input of hours worked.
  2. Split out band E to detail the reason for the irregularity.

The preference is to request information on contractual hours worked where those contractual hours are reasonably stable (i.e. not a zero-hours contract).

Dividends paid to shareholders in owner-managed businesses

HMRC is not currently able to determine the origin of Dividends received, for example, whether they are derived from an individual’s own company or from other sources. 

The current self-assessment tax return includes a voluntary box to enable individuals to inform HMRC that they are a director of a Close company.

It is proposed that:

  1. The company director and close company fields that already exist on the SA102 form will be made mandatory.
  2. A new mandatory field would be added to the SA102 form that would ask for the value of dividends received from the close company of which the individual is a director.
  3. A further new mandatory field on the SA102 would be added, asking for the percentage shareholding in the company.

The consultation states that this data gap reduces the government’s ability to understand this population and target policy appropriately, including reliefs and the monitoring of tax-motivated incorporation. It also states that it will help focus compliance activities on those individuals who engage in tax avoidance.

The start and end dates of self-employment

The existing tax return includes voluntary boxes to record the start and end dates of trading businesses.

  • It is proposed that these fields are made compulsory.

Consultation questions

Question 1: Within this option, should HMRC prioritise improving self-employed data as set above, or another customer segment (e.g. employers, companies, partnerships, businesses registered for VAT)?

Question 2: Are there any areas of the tax system where HMRC’s collection of sectoral data could be streamlined or where we could collect this information in a different way? In particular, does your business provide sectoral data to HMRC (or other parts of government) in more than one place (for example, to HMRC through both VAT and Self Assessment; or to HMRC and to Companies House)?

Question 3: for taxpayers and their agents: How easy or difficult are SIC codes to use for your business? What would make it easier for your business to find and input your SIC code(s)? What level of SIC would be most appropriate (i.e. three or four digits)? Do you prefer using the full version from the Office for National Statistics, or the condensed version used by Companies House?

Question 4: for software providers: How easy or difficult would it be for you to incorporate SIC codes into your software, in a way that is easy for your customers to use?

Question 5: Would you find this information useful, if published in an anonymised form by the government (potentially linked with other datasets, such as salary, qualification or location information)?

Question 6: for employers/payroll providers: How easy or difficult would you find it to categorise each of your employees by occupation? If you have used SOC codes previously, how easy or difficult to use, and what, if any, challenges do you find with them? Do you have any suggestions as to how we could modify or design this option in a way that minimises costs?

Question 7: for the self-employed/their agents: How well do SOC codes describe your [/your clients’] occupation?

Question 8: How easy would it be to extract job titles from existing payroll systems into RTI?

Question 9: Within location data, is HMRC correct to prioritise improving data on businesses with multiple locations, and on the location of real economic activity?

Question 10: Are there any areas of the tax system where HMRC’s collection of location data could be streamlined or where we could collect this information in a different way? In particular, does your business provide detailed location data (e.g. covering multiple branches of your business) to HMRC (or other parts of government) in more than one place? Which avenue do you find the least burdensome?

Question 11: How easy or difficult would it be for your business [or, for agents, your customers] to provide work location information for each employee through RTI?

Question 12: for payroll providers: How easy or difficult would it be for you to modify your software/your service to allow for the provision of work location information for each employee?

Question 13: How easy or difficult would it be to provide information on specific hours worked and/or actual hours worked?

Question 14: How predictable are the hours of your employees? How often do you use category e) hours worked (‘no regular pattern’), and what for? For example, pension payments or irregular working patterns (and if so what type of irregular pattern)?

Question 15: Do you agree that building on the pre-existing definition of a close company is the best approach? Are there any other approaches you would prefer?

Question 16: How great would the administrative burden be for you or your customers in splitting out dividend income from controlled companies and/or determining the percentage of shareholding in that company?

Question 17: How easy or difficult would it be for you/your clients to identify the dates that your business/your client’s business started and ended trading within a tax year?

 

The consultation closes on 12 October 2022. Responses can be sent by email. 

Useful guides on this topic

Close companies: Definitions & control
This guide goes over basic definitions. When is a company deemed "close" and what constitutes control?

RTI: Real-Time Information for PAYE
What is RTI: Real-Time Information (RTI) reporting for PAYE? How does it work?

Dividend tax (subscriber guide)
This practical tax guide explains how dividends are taxed on or after 6 April 2016. It includes HMRC's own examples, more detailed examples, including an Owner Managed Business (OMB) section together with tax planning tips.

New business: Sole trader compliance checklist
Starting in business? A new business registration checklist.

2021/22 Self Assessment tax return toolkit
2022 Self Assessment toolkit: top tips for completing your tax return for the year ending 5 April 2022. 

External link

Open consultation: Improving the data HMRC collects from its customers


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