The government is legislating to require businesses to change the information they provide to HMRC through Pay As You Earn (PAYE) Real Time Information (RTI) returns completed by employers.
The Finance Act 2024 introduced powers to enable the collection of additional data and for HMRC to specify, through Statutory Instruments, the particular information required. The draft regulations published on Thursday 14th March 2024 specify the additional information required from relevant taxpayers.
From April 2025:
- employers will be required to provide more detailed information on employees’ hours paid via Real Time Information PAYE reporting
Hours paid! What and why?
Whilst HMRC currently collects information on employee hours through the RTI FPS, that information was originally designed to assist with eligibility decisions for Working Tax Credits. HMRC view that the data is not sufficient to support improved compliance or better targeting of tax administration and policy interventions. They claim that updating and improving the information provided to HMRC on employee hours ‘will provide better outcomes for taxpayers, as well as improving compliance, resulting in a more resilient tax system’. How is difficult to understand.
From April 2025, employers completing RTI returns will be required to provide HMRC with the number of hours paid for each employee within that pay period where that information is held. Where that information is not held, employers will be required to provide the reason with reference to a specific description set out in the regulations.
HMRC claim that with this added data they will be able to more easily identify underreported earnings. This will also support HMRC’s upstream compliance approach ‘to positively influence changes in customer behaviour, supporting customers to get their tax right first time’. How is not overly clear!
What is wrong with the current hours banding?
Under paragraph 21 of schedule A1 to the Income Tax (Pay As You Earn) Regulations 2003 (PAYE Regulations), employers have been required to submit data to HMRC through the RTI FPS return in the form of bands related to the number of hours (A to D). For workers on zero hours contracts, or anyone else without regular working patterns, employers could select a fifth band, (E), for ‘other’. This meant that HMRC had no information on their hours – although it is still not clear on why they would need to know!
What will be required?
Employers will now be required to report the total number of hours paid for each employee in a numerical format per pay period for which an individual RTI FPS return is made.
This new figure for employee hours will depend on whether the employee is paid an hourly rate of pay, or via a contract which specifies a number of hours or a combination of the two in some cases.
For example, for an employee whose contract specifies a number of hours, the employer will report the number of hours in the contract for that pay period. If that employee has worked any additional paid hours in overtime in that pay period, then the reported hours will also need to include the number of overtime hours paid for.
Where all or part of a payment to an employee does not result in any hours data, employers must tell HMRC the reason by reporting one or more relevant descriptions from a list:
- statutory payments paid through payroll such as Statutory Sick Pay
- taxable Benefits in Kind such as a company car or other employee benefit processed through payroll instead of reported to HMRC at the end of the tax year
- redundancy payments and similar termination payments made when an employment ceases
- employees who are paid by measure of output (eg piece work, activities undertaken)
- officeholders such as directors or public positions not subject to contractual terms mentioning hours worked
Does payroll have this data?
So does payroll have this data? Is it essential for the operation of payments to employees?
The proposal is problematical. For many the paid hours is not relevant to any payroll calculation. Many payroll service operatives will not be supplied with the information and many businesses will not be geared up to either collect or report via their payroll service this detail.
The current requirement for reporting on the payslip variable hours worked data is not the same. And for many is not applicable.
What about pensioners, those with salary or those who are not paid by the hour worked or the amount of items produced.
This type of data may be available for some, but for the majority will not be known by payroll!
So will business process have to change!?
If this steams ahead as it appears to be m then business will need to urgently change on how paid work time is recorded, passed through to payroll and how reported to HMRC.
Is the payroll industry happy about this proposal?
It would be fair to say that many areas of payroll services and software are livid about the proposals. Although representation has been made already on the problems and challenges on the prior consultation rounds, these have all but been ignored. The reason is not sound as to why this information is needed at all, yet HMRC are steaming ahead!
Where can I find the consultation detail?
Draft legislation: Improving the data HMRC collects from its customers
PAYadvice.UK 15/3/2024