RTI reporting changes: many voices make a difference

01 October 2024

Susan Ball, employer tax partner, RSM UK, outlines how people power can drive legislative change, even when it may appear too late

The collective voice of payroll professionals can change things, even at the eleventh hour. Let’s take a recent example. Cast your mind back to the draft Finance Bill published in July 2023, which outlined a new power for HM Revenue and Customs (HMRC) to request additional data from employers and individual taxpayers. At the time we were told the driver of this measure was the government’s ten-year tax administration strategy, Building a trusted, modern tax administration system, published in July 2020. It stated: “Covid-19 has emphasised the value of a tax authority having access to real-time data.”

Working together

In July 2022, the government followed up the strategy with a consultation, Improving the data HMRC collects from its customers, proposing several potential options for enhancing the range of data HMRC collects. A summary of responses, published in April 2023, set out plans to proceed with some of the simpler options where taxpayers already hold the relevant data. When the Finance Bill was published in July 2023, it listed three specific types of new data to be collected by HMRC, with effect from financial year 2025/26. The first of these concerned employee hours, which the government anticipated would affect around two million pay as you earn (PAYE) registered businesses.

Concerns were raised as this didn’t include details on exactly what employers would be asked to provide. The payroll profession made sure its voice was heard. This can be seen clearly from a report issued in February 2024 in which the Economic Affairs Finance Bill sub-committee called for the nature and quality of consultations to be improved. It also highlighted that HMRC’s resourcing problems had only deteriorated since its last report. At the time, Samantha O’Sullivan, CIPP policy and advisory lead, told the sub-committee that “improving the data that HMRC collects can only be a good thing” providing that “a massive additional administrative burden is not put on payroll teams”.

Data confusion

The committee, unsure of exactly why the data on employee hours was needed, asked HMRC. Zoë Nettlefield, HMRC’s deputy director, strategic data policy, said, “This work was prompted by the use of HMRC’s data to deliver Covid schemes and the data gaps that we identified in using tax administration data for non-tax purposes.” She explained, “It is the information, the intelligence that we can use to understand whether there is undeclared tax and [National Insurance contributions (NICs)], and similarly with regard to the national minimum wage (NMW), which HMRC has operational responsibility for the enforcement of.”

The financial secretary at the time wrote to the chair of the committee with more detail about the uses of the data: “Employee hours data will provide a better understanding of economic activity, and the impact of economic shocks on the income of employees… HMRC envisages that the new hours information will enable them to accurately identify the correct population for any future promote and upstream activity and drive even more complaints from workers about underpayment of NMW.”

Those providing government with their views, however, weren’t convinced this data would help with HMRC’s responsibility for enforcing compliance with the NMW and the draft legislation issued later containing the detailed requirements highlights this further.

In short, concerns were raised before the Finance Act became law. It received Royal Assent on 22 February, in the last government’s rush before the general election.

More generally, the sub-committee commented, “Too often, a consultation begins when it appears that the government has already decided what it wants to do: in those cases, it consults only on how to go about making the changes in question.”

Responding and engaging

The sub-committee also raised concerns about the length of time it took for the government to clarify to businesses what was required, despite a consultation on the measures going on for a year.

In the report, the sub-committee said, “The lack of clarity about the rationale for collecting the additional data, and how this data would be used, caused a great deal of confusion and uncertainty. We struggled to understand what the government was trying to achieve by requiring additional data from employers and individual taxpayers. Additional burdens should not be placed on businesses unless there is a compelling reason to do so.”

In short, the witness at the meetings and the submissions made by the profession got across the concerns of employers in this area, showing that responding and engaging in this way can make a difference.

Lord Leigh of Hurley, chair of the sub-committee and a chartered accountant, went on to say, “We don’t think [HMRC] has done a proper impact assessment on the time and cost to companies to collect the information that they’re seeking. We’re not convinced that they understand the cost and time that’s going to take for many companies who are frankly focusing on other issues right now.”

The government estimated initially that providing employee hours data would cost employers £35 million in one-off set up costs, with negligible ongoing costs, meaning costs of somewhere between £18.25 and £35 per employer. This was adjusted to £58 million one-off costs and £10 million ongoing costs in March 2024, with HMRC having to spend between £5-6 million to change IT to support this and the other data requirements.

A further consultation complaint was that in some cases, the government moved too quickly from initial consultation to full implementation. Complaints were made, even back in 2023, that the deadline for the HMRC data collection requirement was too tight, as the actual detailed requirements would only be published in March 2024. Many voices again expressed continued concern at the requirements, particularly the limited time employers and software providers had to get ready for the changes.

To recap, the requirement was to report the total number of hours worked by each employee in respect of payments reported in the relevant RTI return. This would depend on how the employee’s pay was determined, including:

if the employee is paid based on an hourly rate, the employer must report the number of hours worked
if the employee is paid based on hours specified in their employment contract, the employer must report the number of hours in that the contract
if the payment to the employee isn’t determined on one of these bases, the employer should report the number of relevant hours as ‘nil’ and, where relevant, specify one of the following descriptions of the payment:
- taxable social security benefits (eg statutory sick pay)
- payrolled benefits-in-kind
- termination payments
- payments determined by reference to output (e.g. piece work)
- payments made to officeholders (e.g. directors without contractual terms that specify hours).

If an employee’s pay in a particular period is determined in several of these ways, the employer should report the total working hours as the sum of the hours for each individual pay element.

Driving decisions

Perhaps one of the problems from the start (although it was told otherwise) is that HMRC believed this information was already held by employers, as the NMW regulations require records for six years to demonstrate that NMW is paid. However, many employers’ risk assessment of compliance with NMW and the reporting burden on them means that, where employees are paid significantly more than NMW, employers may have taken the view that the information was not required. If it was held, was not in a system that could easily feed into the payroll software.

Thankfully, on 15 August these ongoing concerns raised by the profession led HMRC to announce, “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.”

This just goes to show that making your voice heard via your professional institute, or indeed by submitting responses individually, can make a real difference. The greater the number of voices, the greater the impact. Delaying this change – assuming it is ultimately introduced as it may not be – means that employers, software developers and other stakeholders will now have more time to prepare, and we may now also see amended and more suitable measures introduced.

In addition, with the new government announcing plans to deliver the most “packed legislative agenda” in decades, we could see lots of future changes impacting the industry. It would be wise therefore for payroll professionals to continue monitoring tax and employment legal consultations and making sure to input comments, whether via the CIPP policy and research team or directly. Your voice matters!