Submitted by Sestini & Co
| on Fri, 07/28/2023 - 11:30 | In digital tax
July 2023 // The Draft Finance Bill 2023-24 includes a Policy Paper on ‘Changes to data that HMRC collects from customers’. If accepted, the changes will come into effect from tax year 2025-26.
Around 1.2 million self-employed businesses, 1.9 million PAYE-registered businesses, and 900,000 businesses which include shareholders of an owner-managed business, will need to submit the additional data.
HMRC research quoted in the Policy Paper shows one-off costs to transitional businesses are likely to be:
- £9m – dividends paid to shareholders in owner-managed firms
- £35m – employee hours worked – for employers to amend their systems
The continuing impact on administrative burden is estimated at:
- £9m – dividends paid to shareholders in owner-managed firms. This is likely designed to weed out personal service companies where IR35 rules may not be applied fully or correctly
- Negligible – employee hours worked
- £600,000 – start and end dates of self-employment. Failure to provide this information can be penalised by a £60 fine. Additional guidance on what constitutes ‘start’ and ‘end’ dates will be developed.
Additional data requirements
- Employers will be required to provide more detailed information on employee hours worked via Real Time Information PAYE reporting.
- 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.
- The self-employed will be required to provide information on start and end dates of self-employment via their Self Assessment return.
The new Self Assessment requirements will mainly impact small businesses.
HMRC does not predict this will raise additional taxes or have “any significant macroeconomic impact”.
Whilst HMRC says that the additional data requirements are driven by a desire to better serve and better understand its customers, it does acknowledge that the changes “will improve compliance”, which is likely the main driver behind the change.
HMRC’s annual report 2022-23, published in July 2023, includes as one of its strategic objectives “Make it easy to get tax right and hard to bend or break the rules”.
The latest UK tax gap published shows it is 4.8% (from 7.5% in 2005-06). The tax gap from small businesses is the largest proportion of the tax gap by customer group, at £20.2 billion or 56% in 2021 to 2022.
Increasing the paperwork burden
The move will certainly create more paperwork for already-stretched businesses.
As HMRC itself admits in its July 2023 Policy Paper, “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.”
Initially data requirements were set to be even more onerous, with the initial consultation also suggesting additional information on sector, occupation or location would be required. Push back in consultation responses has shelved this requirement, for the moment at least.
If you would like to discuss the proposed changes, get in touch with our UK tax team at 01761 241 861 or email@example.com
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