IPSE responds to HMRC data consultation with ‘deep concerns’ about proposals

IPSE has responded this week to HMRC’s consultation on Improving the data HMRC collects from its customers expressing concern at the proposals that would require those filing a Self-Assessment Tax return to include information such as dividends received, origin of dividends received, shareholding structure and location of economic activity.

What are HMRC’s proposals for collecting additional data?

For the most part, the proposals set out in this consultation would require additional questions to be added to the Self-Assessment Income Tax form or change current optional questions within the form to compulsory.

Existing powers granted to HMRC by Parliament on tax administration means that these proposals could potentially be introduced without parliamentary consent and HMRC have indicated that this could occur in 2024 or 2025.

In particular, the proposals from HMRC would see them collect additional data on the following areas:

• Dividends paid to shareholders in owner-managed businesses

Currently, company directors can report to HMRC that they are a director of a limited company by responding to an optional question or box on a Self-Assessment Tax Return.

Similarly, all taxpayers filing a Self-Assessment Tax Return must declare all dividends received from UK companies.

The proposals from HMRC would see the optional question on whether you are a limited company director become compulsory. In addition, two new questions within the form would then require company directors to input the exact value of dividends received from their own company before asking for the percentage shareholding in the company.

• Location of employment or business activity

HMRC already has address information, which in most cases should correspond to where their business is based.

Yet, the proposals would require those filing returns for Income Tax, Corporation Tax or VAT to provide all the locations of a business and then ask the individual to split out the activity between these locations.

It wasn’t completely clear in the consultation document how this would work for contractors who work for multiple clients across multiple locations in a tax year.

How IPSE has responded

IPSE’s policy team has already met with HMRC officials to discuss these proposals where we expressed concern at the potential for an additional administrative burden being placed on contractors already navigating the onerous and complex tax system.

Similarly, we also voiced our strong suspicions that this additional data – particularly around dividends – would be used by HMRC for compliance purposes and increase the potential for retrospective investigations that are deeply stressful and time-consuming for freelance businesses.

We also raised these concerns within our consultation response, citing the lack of support for limited company directors during the pandemic as further evidence that government lacked genuine ‘political willingness’ to company directors during the pandemic - so why should these same businesses now believe government wants to use this additional data to improve policy implementation?

The response also focuses on unresolved issues with the current tax system – such as with IR35 and MSC legislation – arguing that until these areas of the tax system are addressed, freelance businesses across the UK will be understandably suspicious and opposed to these proposals.

On location, we have urged HMRC in both our conversations and in our consultation response to make the self-employed and businesses without employees exempt from the additional requirement to report on location or location of economic activity due to the potential for a significant administrative burden being placed on these small businesses. We also raised the point that freelancers often work with multiple clients in multiple locations throughout the tax year which would only add to the already lengthy and complex process of filing a tax return.

IPSE will continue to voice our opposition to the bulk of the proposals – particularly on dividends and the potential threat of HMRC using this data for compliance purposes. We will also continue our talks to other business groups to align our opposition from both a contractor and business perspective and apply maximum pressure on HMRC to rethink these proposals.

If you have any other thoughts on the proposals and their potential impact, we’d love to hear from you at [email protected].