Improving HMRC’s data collection – what does this mean for employers?

HMRC are consulting on how best to obtain additional information on employees through the PAYE system.

HMRC are consulting on how best to obtain additional information on employees

HMRC have opened a consultation, ‘Improving the data HMRC collects from its customers’, on options for increasing the data they collect to support both HMRC’s enforcement activities and the Government’s policy agenda. Significantly for employers, this includes how additional information on employees’ occupations, work locations, and hours worked could be collected through the PAYE Real Time Information (RTI) system. The consultation closes on 12 October 2022 with confirmation of any changes the Government proposes to make, and a timetable for implementation, expected later in the autumn. However, any changes would be brought forward in Finance Bill 2023/24 at the earliest. This article discusses the potential new employment-related compliance obligations, what they might mean for employers, and what employers should consider now.

What additional information do HMRC propose to collect and how?

The consultation sets out three areas in which HMRC consider the employment-related data they collect could be improved:

  • Employees’ occupations (to help target employer incentives for employee training, including the Apprenticeship Levy);
  • Employees’ work locations (to serve as a proxy for economic activity and help HMRC identify specific compliance risks); and
  • Hours worked by employees (to help analyse labour market trends and strengthen the enforcement of employment rights).

HMRC propose that information on employees’ occupations would be collected by adding a compulsory new field to RTI. This might request the employee’s job title, which is matched to the relevant Office of National Statistics Standard Occupational Classification (SOC) code to ensure comparability of data across employers. The consultation notes that some employers who work with complex labour supply chains, for example umbrella companies, might need to collect this information from employees proactively.

HMRC’s preferred approach to obtaining work locations is to require employers to include each employee’s office location or normal workplace in the RTI return. A new field might be included to indicate individuals without a standard work address (e.g., agency workers) or multiple work locations.

On working hours, employers are already required to include high level information in the RTI return by specifying a band (A – D) within which each employee’s working hours fall (or to select band E for ‘other’), and to include actual hours worked on employees’ payslips. The consultation proposes two options for collecting enhanced data on hours worked through RTI, one or both of which might be implemented:

  • Replacing bands A – D with a field that requires a specific numerical input for the number of hours worked; and
  • Requesting specific information on workers with irregular hours which do not fit in one of the current reporting bands A – D.

For employees who are not paid by the hour, to ease administration HMRC’s preference is to require employers to provide specific information on contractual hours worked where these are reasonably stable.

Why is this consultation important?

Employers will need to confirm the implications for their payroll/ HR systems and processes of gathering, validating, and reporting the relevant additional data if the consultation’s current proposals are taken forward.

Additionally, employers should consider the wider implications of HMRC collecting additional employee data on work locations and specific hours worked. For example, a mismatch between the location given as an employee’s usual workplace under any new reporting obligations and that which the employer treats as their permanent workplace when reimbursing travel expenses could prompt HMRC to review whether travel expenses are being treated correctly for tax purposes.

The consultation also makes an explicit link between HMRC obtaining specific information on employees’ actual hours worked and enhanced National Minimum Wage (NMW) enforcement.

Clearly, measures that strengthen NMW enforcement against deliberately non-compliant employers are to be welcomed. However, otherwise compliant employers might inadvertently increase their risk of being selected by HMRC for a risk based NMW review if they fail to report accurate hours, with the attendant costs in terms of management time and potential reputational risk.

Information on employees’ work locations would also allow HMRC to target employers with certain work settings (e.g. warehouses) that are regarded as high risk for inadvertent NMW breaches.

Additionally, the changes proposed could potentially present opportunities for employers, as high quality data on employees’ work locations and working hours could reveal valuable insights into business issues such as staff development and training, deployment of personnel, and NMW compliance risks.

What should employers do now?

Employers should review HMRC’s consultation in detail and consider whether to respond (please see our earlier article for an overall summary of the consultation, including its non-employment-related aspects).

Key employment-related issues on which HMRC invite comment include how easy or difficult would it be for employers to:

  • Categorise employees by occupation (e.g. by extracting job titles from existing payroll systems);
  • Provide location data for employees through RTI (this might be made more challenging by new working patterns, and there is a clear cross-over with the Office of Tax Simplification’s recently announced review of hybrid and remote working); and
  • Provide information on specific hours worked by employees.

We expect HMRC to confirm in late autumn which proposals, if any, the Government intends to take forward, and the implementation timetable.

Once the specific changes have been confirmed, employers should consider what relevant information their current systems process and collect, how robust that information is, and what changes might be required to ensure they can comply with the prospective additional reporting obligations. Implementation project plans and budgets should also be considered at that stage.

In the meantime, KPMG in the UK is currently considering what submissions it might make in response to this consultation. If there are points you wish us to consider including in any response we submit to HMRC, please speak to the authors below or to your usual KPMG contact.