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A silhouette of a person's hand through the lines of code AccountingWEB HMRC demands more data
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HMRC demands more data in three areas

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New requirements for reporting working hours, shareholdings and dividends relating to owner-managed companies, as well as self-employed trading dates, will come into effect from 2025/26 or a later period.

26th Jul 2023
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A year ago I warned that HMRC wanted to grab more data from employers, businesses and individual taxpayers in order to identify:

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

Three new data requirements

This month HMRC confirmed that employers and business owners will be required to provide data for points 4, 5 and 6 above.

Draft legislation has been released that includes provision for regulations to be laid that adjust the personal tax return, 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 law 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.

Employee hours

The employee working hours data will be reported by employers for each pay period on RTI returns.

The FPS already includes a report of the hours worked per week by each employee but only in four broad bands to align with the information required to confirm eligibility for working tax credit.

There is another band (E) which should be used for workers on zero-hour contracts, where there are no set hours, or for pensioners being paid a company retirement pension or annuity. 

The proposal is for employers to provide details of the contractual hours worked, where those hours are relatively stable (which is not defined), such as for salaried employees.  Where the worker is paid by the hour, or has irregular hours, the actual hours worked will have to be reported.

The government believes that this extra reporting should not impose a great burden on employers as they are required to record hours worked to ensure the national minimum wage (NMW) has been paid. The impact assessment includes a one-off cost of £35m for employers to amend their systems, which works out at just £24 per UK employer.  

Asked how this costs figure was arrived at, an HMRC spokesperson told AccountingWEB: “HMRC estimated how long it would take an average business to familiarise themselves with the requirements and make a one-off change to their RTI data return process.   Average earnings figures from the ONS were then used to quantify the cost of that time and multiplied by the number of businesses affected”.

A spokesperson at the Chartered Institute of Taxation (CIOT) said: “While collecting data on hours may be useful for HMRC for certain tax purposes, we do not believe that it will offer any direct benefits to businesses and taxpayers. The reasoning for requiring data about employee hours worked to be included on RTI returns does not appear to have been explained.”

Self-employed start and end dates

This information is already requested on the self-employment pages of the tax return, so the only change will be to mandate the completion of those boxes. If the taxpayer 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 (presumably tax agents) to ensure that clear definitions are produced in adequate time before implementation of this change. This is reassuring as the commencement of a business can be a very grey area, especially where the business gradually grows out of a hobby.

A clear definition of when a trade or letting business starts and closes for tax purposes will also be essential for the smooth operation of MTD ITSA.

Dividends and shareholding percentages

HMRC has not been clear about 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, leads me to assume that this data grab is designed to target personal service companies which may not be applying the IR35 rules correctly.

HMRC has confirmed that only shareholders of close companies who are also required to complete a tax return will be asked to provide this dividend breakdown and shareholding data. 

HMRC also provided answered to my questions:

  1. Why is this information needed by HMRC? “The additional information will improve HMRC’s ability to understand this population and target policy appropriately, including appropriate reliefs and the monitoring of tax-motivated incorporation.”
  2. How will the regulations define ‘owner-managed business’? “HMRC proposes to build on the existing definition of a close company contained in the HMRC Company Tax Manual by asking further specific questions as set out in the consultation.”
  3. What will the taxpayer have to provide in terms of the percentage of shareholding? “The taxpayer will be asked to enter a value of xx % which represents their percentage shareholding in the company.”

Shelved requirements

The government 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, the government will explore how to collect business location data as part of the new digitised business rates system, but it won’t ask businesses to provide this information on their tax returns.    

This article was amended on 26 July to include information provided by HMRC after initial publication.

Replies (42)

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the sea otter
By memyself-eye
21st Jul 2023 12:35

The government believes....
just £24 per UK employee.....

Well that's alright then - businesses can easily cope with this extra burden, most are under no other pressure whatsoever, a doddle really, surprised the government hadn't thought of it sooner.

Thanks (11)
Replying to memyself-eye:
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By Open all hours
21st Jul 2023 12:50

£24 per employer.
Just what we need right now.

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By Hugo Fair
21st Jul 2023 12:53

"Until we see those regulations, we won’t know exactly what the taxpayer will have to provide" ... or indeed find out whether HMRC have fully thought through all the anomalous scenarios that are out there.

Random examples that spring to mind:

* Employee hours - "The proposal is for employers to provide details of the contractual hours worked, where those hours are relatively stable (which is not defined), such as for salaried employees" ... but
- how many salaried employees regularly work a variable number of hours in excess of the contract (which really just defines the minimum required)?
- and what about salaried workers who receive additional pay for overtime or TOIL or whatever (and those who lose pay for taking unpaid time off, etc)?
- this data isn't typically recorded by employers except for employees who are hourly-paid (and even then pay is often based on a 'norm' that is then adjusted next month when the data on hours from previous month has been collected & authorised)?
... there are many more 'examples', with the only certainty being that any correlation between reported 'hours worked' and 'pay made' is likely to be somewhere between random and broken.

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Replying to Hugo Fair:
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By Hugo Fair
21st Jul 2023 13:10

Other instant thoughts ...

* Dividends:
- are HMRC aware of the possibility of multiple share types?
- and of shareholding being 100% held by holding company?
- why only Directors (not shareholders with say >20%)?
- what about 'nominee' Dir (say husband) vs 100% shareholder (say wife)?

In the (current) absence of definitive justifications for this land grab of data, why are HMRC allowed to stray into data collection that doesn't appear to support their remit of collecting tax accurately?

In my response to the consultation, I asked (amongst other things), 3 questions:

1. What purpose will each item of extra data be used for (tax or otherwise)?
2. When will the new govt systems required to handle this become available?
3. What, if any, benefits are expected to accrue to employers and/or taxpayers?

Thanks (12)
Replying to Hugo Fair:
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By raju m
24th Jul 2023 10:11

Answer to question 3 is no benefits but incentive to close and retire ASAP. Raj

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Replying to Hugo Fair:
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By neiltonks
21st Jul 2023 17:38

It's been a requirement for a few years now that the number of hours worked must be shown on the payslip of people whose pay varies with time worked. I guess HMRC assume that since the information must already exist in order to meet that requirement, adding the same value to the FPS will not be hugely difficult. Whether that's the case, of course, will depend on whether the awaited regulations specify the hours value for these employees in the same way as the regulation relating to the payslip!

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Replying to neiltonks:
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By Hugo Fair
21st Jul 2023 18:05

The devil will indeed be in (or not) the detail of those regulations when they have been hammered out & published.

But, although I've heard HMRC use what you've said there as justification (as in "it's already required isn't it?") ... it's a very incomplete answer.

When this was all proposed initially I (and many others) pointed out the payslip mandation only applied to 'variable hours' pay - as you say - so their new proposal now is to use the figure for 'contracted hours' otherwise!
However, as per my post above at 21st Jul 2023 12:53, that just opens up further problems ... both in deciding what data to submit and in terms of its value to HMRC (as it diverges further & further from a direct relationship to paid amount).

P.S: just thought of another fun one - one individual with two concurrent employment contracts at one employer (as in hourly-paid teaching duties + part-time salaried role in support role).
So in theory - add the contractual component to the teaching hours ... but the part-time salary is paid at a regular amount, despite there being a quite different number of hours in individual months (the working-pattern being weekly)!

Thanks (3)
By ireallyshouldknowthisbut
21st Jul 2023 14:30

Experience suggest any data which has no impact on the tax due will be treated as "meh" data, and the level of accuracy extremely low.

Any number will do.

Thanks (10)
the sea otter
By memyself-eye
21st Jul 2023 14:46

I got it wrong - £24 per employer- phew!
Mind you, soon will be per employee.

Thanks (2)
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By AdamJones82
21st Jul 2023 14:59

I wish I was young enough to get out of this, HMRC are a bloody shambles and make the job more and more unbearable.

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Replying to AdamJones82:
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By GHarr497688
21st Jul 2023 15:32

I am out from September 2023 and just can't wait.

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Replying to AdamJones82:
7om
By Tom 7000
24th Jul 2023 15:53

every time they change the rules it is an opportunity to advise a client...
isnt that what you wanted to do... not fill in SA100s

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By jon_griffey
21st Jul 2023 17:01

In fairness I have often thought it odd that there is no mechanism for HMRC to be able to easily check dividends paid by a company to a personal tax record, unlike the RTI system for salary. There must be a serious tax gap here with non declaration of dividends. In principal I think it reasonable for HMRC to require some sort of electronic report listing what dividends have been paid to whom, which would find its way onto the personal tax record and prepopulate personal tax returns. The trick of course is to design a system that is not unnecessarily onerous. Perhaps an extra page on the CT600 giving this information would suffice. It is this sort of thing that HMRC should be focussing on, not the MTD ITSA vanity project.

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Replying to jon_griffey:
7om
By Tom 7000
24th Jul 2023 09:53

Yeah, I always thought there was a gap here and that quarterly ACT on a CT61 should be reintroduced to

1. Stop o/d DLAs
2. Split the divs paid over say £1000 ( tax free amount) each by UTR so they know for SA100s
3. Stop the back dating of dividends so they are declared in accordance with CA rules

It would stop the bad lads from fiddling.

Although we would all have to charge £150 to send them in x 5.... So another compliance burden.

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By Mike87
23rd Jul 2023 02:39

In honesty, are we all really surprised?
The UK has promoted a notion of Growth and prosperity, when their actions are promoting the opposite. This is another example of those making the rules and regulations being completely out of touch with industries.

During covid, we (contractors) were offered no financial assistance. The industries we were supporting were closing, temporarily or permanently. We hit rock bottom.
During this time of financial strain, IR35 was pushed through - despite many industry experts and genuine contractors knowing and expressing its faults, gaps and negative impacts. But it was pushed through.

Companies started blanketing and umbrella companies started taking advantage of fine prints and legislative gaps. Experienced contractors started leaving the UK or retiring, those who stayed have suffered.

IR35 is so focused on the concept of employees, that it fails to recognise the risk that comes with this type of employment. It also fails at its core concept of employment. The contractors have essentially no employment rights: sickness, holiday, guaranteed payments - the list goes on. Contractors even have to pay additional employer tax contributions on top of regular employee obligations.

HMRC and the government have ultimately failed these people, valuable resources that industry sectors relied on - not for tax evasion, but to support their business goals and aspirations; and the worst part of this story is that both entities are above accountability.

The IT development sector is a complete mess. People have been pushed out of their trade and in some cases, into financial hardship.

Neither entity's understand how the industry works and fail to truly appreciate the impact. We ask why they are collecting these additional data points...? The answer is simple: because they can and because data is valuable.

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Replying to Mike87:
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By Tom 7000
24th Jul 2023 10:04

Nah, lets look at this fairly. They have one client, and they are all employees, just trying to pay business taxes because Employee taxes are too high.

If the taxes were the same regardless of the way you traded, they would all be employees, hanging on to their HR rights. Its just human nature.

However, I dont think IR35 should exist. The government should make taxes the same and then you can be whatever you want without any worry, so they would all be employees. Except the people who are genuinely running businesses and employing people. Then the question arises should you force them to take say the first 50k extracted from the co as salary and only the excess as dividends and the 8.75% div tax uplift is abolished say.

Different ways to bake the cake. The one thing is, as long as they are changing the rules, we all have jobs to explain to people what they have to do now to minimise the tax burden.

Tax can be fun!

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Replying to Tom 7000:
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By Mike87
24th Jul 2023 19:06

I hear you, and agree in some situations - especially where those engagements have employee benefits. Strangely I do agree with the baseline IR35 concept. If you, as a contractor, engage with a company, then it must me as a contractor. If you engage without those benefits (including employee protections), then you are a contractor.

If you blanket contractors with employee tax, then you are failing to account for the risks involved in contracting - sickness, holiday, instability, training, immediate business needs- when people look at solely at the work, then yes, there are a number of similarities between those employed and those contracted, but you need to look at the full picture. When implemented properly, contractor engagement strategies can mitigate a number of business risks in the short term. Take situations such as staff on maternity leave, or uncertain objectives (RnD), facilitating business growth, or speed to market... there are business use cases that justify contractor engagements.

When you aim start treating contractors equally to employees, you loose the contractors, because contracting is completely unviable. You essentially create a situation where these people have no employee rights and no way to mitigate against the risks of being within that role. I bet you that the client companies will likely then stop employment operations - why employ, when you can cannhave the same engagement risk free? - this will force employees into becoming contractors.

Industries need contractors and those contractors should be enabled to mitigate against the risks of being a contractor. We shouldn't seek to examine and align on the work, it should be focused on the engagement. IR35 seeks to do this, but to be frank, the solution isn't viable and the identifying factors identifying contractors and employees should be simplified... or even reverted back to contractor/recruiter level assessments of engagements, with a shared risk to all parties involved (recruiter, contractor and client).

They are my thoughts at least, and welcome other views - opposing or otherwise.

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By [email protected]
24th Jul 2023 09:50

Something else to do for HMG which has a negative impact on the cost vs output equation...
In the next breath we will hear somebody official bleating about the failure of the economy to improve productivity. Perhaps those who occupy Whitehall should take a look in the mirror before posing that question.
As for £24 per employer, that is as ludicrous as other 'cost' estimates.

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By Latinaid
24th Jul 2023 09:51

Don't worry, guys - '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.' We'll all be long gone before HMRC have enough time to implement this.

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Replying to Latinaid:
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By bendybod
24th Jul 2023 17:08

My thoughts exactly

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By Ammie
24th Jul 2023 09:53

HMRC have access to all the information, they need to devise the digital solutions and engage the necessary staff to achieve it. But the option, as it always seems to be, is to legislate for unpaid civil servants (us) to fill their resource gap and fulfil the function. Ultimately, most of the information they will receive will not even be looked at.

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By seonaid anderson
24th Jul 2023 09:54

On dividends for directors...is this a back door way of making all directors complete tax returns, something HMRC has been keen to reinstate?

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Replying to seonaid anderson:
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By kjevans
24th Jul 2023 10:04

seonaid anderson wrote:

On dividends for directors...is this a back door way of making all directors complete tax returns, something HMRC has been keen to reinstate?


And surely minimum wage doesn't apply to Directors so why keep a record of hours worked?
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Replying to kjevans:
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By Tom 7000
24th Jul 2023 15:54

...minimum wage.....

I think what you should have added is... NOT YET

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By Slippy
24th Jul 2023 09:54

HMRC can't cope with the information they already receive!

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Morph
By kevinringer
24th Jul 2023 09:56

"The impact assessment includes a one-off cost of £35m for employers to amend their systems, which works out at just £24 per UK employer. "

Are HMRC saying the ongoing cost of obtaining the information to populate the software is £nil?

Remember when HMRC said the cost of MTD ITSA will be negative because HMRC had failed to take into account the cost of digitising the transactions? HMRC later admitted there would be a small cost, then a larger cost. I think this is another example, especially dividend data because currently that goes nowhere near the payroll systems.

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By CORSALOVER2
24th Jul 2023 10:07

Driving small businesses further and further into the black economy...... perhaps they should start by getting existing regulations sorted out properly before bringing new ones into the equation. These people are so far away from reality; no wonder people don't understand and don't want to 'comply' with their rubbish. Glad I'm not young any more.........

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By Ben Alligin
24th Jul 2023 10:24

More than happy to provide HMRC with the required information as long as they can tell me :-
a) The number of HMRC employees manning the the ADL/ working in the correspondence team
b) How many hours each employee worked per day
c) How successful in terms of dealing with the agent query were they
d) How long it took on average to answer the call
e) How much was each employee paid to successfully deal with a query, and finally
f) All data to be updated weekly
Shouldn't cost them more than £24/week as this will all be digitialised.

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Replying to Ben Alligin:
Morph
By kevinringer
24th Jul 2023 11:48

Be, it's a one-off cost of £24. The ongoing weekly cost is £nil. Or at least that's what HMRC is trying to say. Somehow the information is going to magically populate the PAYE software.

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Replying to kevinringer:
7om
By Tom 7000
24th Jul 2023 15:56

Nope some one has to do it... and thats you and you'll get paid £24 per peron per week for doing it, so whats the problemo

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By paul.benny
24th Jul 2023 10:32

The figure of £24 per employer is the author's nonsense figure based on a total cost to all employers of £35m.

I suspect it will cost Tesco a little more.

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By Mallock
24th Jul 2023 10:40

My immediate thought when I saw this was that HMRC are looking to see if they can bring some income currently treated as dividends, in to PAYE. They would need to abolish the Directors' exemption from NMW first but it wouldn't surprise me.

HMRC are becoming like the angry wasp in Autumn buzzing about causing everyone grief. It is high time the direction of their travel was changed before they ruin the economy.

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Replying to Mallock:
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By Tom 7000
24th Jul 2023 15:57

Yep thats it, exactly what's going to happen...
The 63% tax you pay at the moment isnt enough. They want 75

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By Mr J Andrews
24th Jul 2023 10:47

Another example of creating additional administration - for no benefit whatsoever - to the general taxpaying public - without sorting out the chaotic mess HMRC are in from previous ill thought out ideas.
The CIOT points out the obvious - the reasoning has not been explained. The further obvious fact is that this data grabbing will have no other purpose than to end up in the Revenue's so called Business Economics to assist with enquiry work.

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Replying to Mr J Andrews:
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By the_fishmonger
24th Jul 2023 14:42

Mr J Andrews wrote:

Another example of creating additional administration - for no benefit whatsoever - to the general taxpaying public - without sorting out the chaotic mess HMRC are in from previous ill thought out ideas.

Imagine being the person tasked with 'fixing things' at HMRC - probably a relatively recently graduated appointment. You take one look at that mess and instantly realise it's nigh on impossible to fix. why? 1) The top brass don't have an appetite for it; 2)MPs are clueless and 3) you haven't really much idea because your degree in politics didn't really prepare you for real world issues.

I, for one, can understand that person trying to deflect by coming up with what appear logical advances. Again the main issue is they don't know jack about how things *really* work, haven't got 30+ years experience of work to fall back on and they wouldn't listen to anyone that does!

The dividend requirement suggests a search for unpaid divi tax in those situations where, e.g. 2 shareholders declare on SATR and 2 have never registered. "Connect" will be busy scratching its CPUs on that one

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Replying to the_fishmonger:
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By johnjenkins
24th Jul 2023 15:40

I'm not an "ist" but I have thought for a while now that Government lacks experience and sage. Why? IMO they are too young for the task that is front of them. To me there is something to be said for the "elderly statesman". My view is that we are moving too fast, where everything is centred on IT and AI and so the "basics" are forgotten. So expect more of this drivel from HMRC and Government.

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Replying to johnjenkins:
Morph
By kevinringer
24th Jul 2023 16:06

Exactly. HMRC is now driven by IT people who know nothing about tax. IT features big in many businesses, but at the core of any successful business are people that understand the business. Look at Amazon: massive IT, but led by people who know retail. HMRC needs to get back to its tax roots: that is its purpose after all.

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By Flann2
24th Jul 2023 11:01

Dividends and shareholding percentages
I think another aspect is to ensure dividends paid by the Comapny agree the ratio of the shareholdings. This apsect has rumbled on before. This could lead to more dividend waivers which will need to be lodged with the company at the appropriate time.
Just another tripwire?

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By johnjenkins
24th Jul 2023 13:17

Notice the £60 (flat) fine for non compliance. If HMRC can't deal with the data they are receiving now it surely follows that it's the non compliance issue they are looking at.

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By alan.falcondale
24th Jul 2023 13:30

I am sensing the foundations here for a future fast track supply of hmrc approved clocking on machines and cards,, get your bids in now

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Replying to alan.falcondale:
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By johnjenkins
26th Jul 2023 09:16

You're not far wrong when you say "you're sensing something". No doubt we won't hear the worst until the last minute.

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By AndrewV12
26th Jul 2023 08:32

'Self-employed start and end dates
This information is already requested on the self-employment pages of the tax return, so the only change will be to mandate the completion of those boxes.'

This is a funny one, as described above its already covered on their tax return, and most self employed people are glad to fill in the boxes for cessation as they wont be issued with any more tax returns.

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