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big brother meme Small Business Snoopers Has HMRC turned into Big Brother?

Tax accountants fears have been realised

At budget time last year, I expressed my worry that HMRC would try to obtain even more data from employers, businesses, and individuals and with their latest announcement, and unfortunately, I have been proven right. Read the blog here

This week they have announced new requirements for reporting working hours, shareholdings and dividends relating to owner-managed companies, as well as self-employed trading dates, to come into effect from the 2025/26 tax year.

They now want to know:

  1. The trade sectors any unincorporated businesses operate in
  2. The locations the business operates in
  3. Each person’s occupation
  4. The exact hours worked by each employee who operates through their own company, together with details of any dividends they receive from that company
  5. When self-employed traders start and finish their businesses

Small Business Snoopers: New data wanted

Earlier this month HMRC confirmed that employers and business owners will be required to provide data for points 4 and 5 above, and they’ve released draft legislation that includes provision for regulations to be laid that adjust personal tax returns, trustee’s return and RTI returns.

Until we see those regulations, we won’t know exactly what the taxpayer will have to provide. The draft legislation indicates the new regulations will take effect for periods beginning in 2025/26, but the guidance refers to a commencement date no earlier than 2025/26, so it could be later if HMRC needs more time to make the necessary adjustments to its systems.

Small Business Snoopers: The self-employed

On a self-employed trader’s tax return, a box already exists to provide information on the commencement of his or her business, so the only change will be to make the completion of this box mandatory. If the trader does not provide this data HMRC will be able to impose a flat £60 penalty.

HMRC said it will work closely with businesses and other affected parties (I assume this will include accountants) to ensure that clear definitions are produced in adequate time before implementation of this change. This is helpful as the commencement of a business can be a very grey area, especially where the business gradually grows out of a hobby or takes many months, or in some cases years to set up.

Small Business Snoopers: Dividends and shareholdings

HMRC has been rather vague as to why it needs a breakdown of dividend income between that generated from the taxpayer’s own company and dividends from other sources. As it also wants the taxpayer to report what percentage of the company’s shares the individual owns This inevitably leads one to assume that this data grab is purely designed to target personal service companies which may not be applying the IR35 rules correctly.

HMRC has confirmed that only directors of close companies will be required to provide this dividend breakdown and shareholding data, but that still leaves three outstanding questions:

  • Why is this information needed by HMRC?
  • How will the regulations define ‘owner-managed business’?
  • What will the taxpayer have to provide in terms of the percentage of shareholding?

Small Business Snoopers: What haven’t they asked for?

HMRC have now said that they will not require businesses to provide data on the industry sectors they operate in or their worker occupations, mainly because of the difficulties in fitting real businesses and job descriptions into pre-defined boxes.

However, they have indicated that they intend to explore how to collect business location data as part of the new digitised business rates system, but they won’t ask this information to be also provided on the individual and company tax returns.

Tax Accountant’s view

We’re all getting used to the government in general, and HMRC in particular, demanding more and more information from taxpayers and their businesses, but I have to ask the question, why? Maybe it is just me being a tad paranoid or is there a more sinister reason?

Only time will tell, but as in George Orwell’s novel 1984, where the government wants to know everything about you as a means of control, we are rapidly approaching the edge of a slippery slope!