Improvement of HMRC’s data collection

HMRC have confirmed what payroll proposals will be taken forward from their recent consultation on improving the data they collect

Payroll data collection changes

HMRC have published the outcome of their consultation, ‘Improving the data HMRC collects from its customers’, which looked at options for increasing the data they collect to support both HMRC’s enforcement activities and the Government’s policy agenda. For employers, this included considering how additional information on employees’ occupations, work locations, and hours worked could be collected through the PAYE Real Time Information (RTI) system. This article discusses which new payroll reporting proposals will be taken forward, and what employers should consider doing now to prepare. 

What’s the consultation outcome?

In the consultation, HMRC considered three areas in which employment-related data they collect could be improved:
  • Employees’ occupations (where the proposal was to add a mandatory RTI field requiring each employee’s occupation);
  • Employees’ work locations (where the proposal was to require RTI reporting on the employee’s office location or normal work base); and
  • Hours worked by employees (where the proposal was to require more detailed RTI data on employees’ hours worked).

What are the specific proposals on reporting working hours?

Employers are already required to include high level information in the RTI return on employees’ hours worked by specifying which band (A – D) each employee’s working hours fall within (or to select band E for ‘other’). Employers are also required to include actual hours worked on employees’ payslips.

The consultation proposed two options for collecting enhanced data on hours worked through RTI:

  • Replacing bands A – D with a field that requires a specific numerical input for the number of hours worked; and/or
  • Splitting out band E (‘other’) to include the reason for the employee’s irregular hours.

The Government has announced that it will require information on contractual hours worked where they are reasonably stable (such as not a zero hours contract), and actual hours worked for hourly rate employees, which will be proportionate and minimise additional burden on the data collation process by employers. 

The consultation outcome does not state specifically how this will be done (i.e. which specific option – or whether both – will be taken forward). However, the Government intends to share draft legislation for technical consultation on these changes in the coming months before including the final provisions in a future Finance Bill.

What should employers do now?

Employers need to understand the implications for their payroll/ HR systems and processes of gathering, validating, and reporting the additional data on hours worked based on the specific details which we expect to be set out in the draft legislation once it is available. In some cases, it may be that the employer’s internal systems either don’t hold this information in an easily reportable manner or require additional system interface processes to be implemented to access the data in an effective way.

Additionally, the consultation makes an explicit link between HMRC obtaining specific information on employees’ actual hours worked and enhanced National Minimum Wage (NMW) enforcement. Measures that strengthen NMW enforcement against deliberately non-compliant employers are to be welcomed. But otherwise compliant employers might increase their risk of being selected for a risk based NMW review (with the associated costs in terms of management time and potential reputational risk) if they fail to report accurate hours. It’s therefore important for compliant employers to ensure they do not inadvertently increase their NMW risk profile through inaccurately reporting hours worked when the new RTI reporting obligations are introduced.

The consultation outcome does not state a specific timetable for the proposed changes. However, the consultation document itself suggested that these might be brought forward as early as Finance Bill 2023/24 (i.e. in next year’s Finance Bill).

Employers should therefore start to consider what steps they might need to take (and what internal project budgets might be required) in preparation for a ‘go live’ date that could potentially be as early as April 2024.

We will review the draft legislation, when available, and publish our thoughts on this in due course. In the meantime, please reach out and speak to the authors below, or to your usual KPMG contact, to discuss how the prospective payroll reporting changes might affect your organisation.