New HMRC reporting requirements for owner-managed businesses and self-employed from April 2025

HMRC are currently proposing new legislation (consultation on which closed in May) that will require owner-managed businesses and employers to change the information they provide to HMRC through income tax Self-Assessment and PAYE real time information (RTI) returns.

These new reporting requirements will allow HMRC to continuously improve the quality of data they gather from taxpayers, ultimately allowing them to identify non-compliance with increasing accuracy. This will of course lead to additional compliance costs for both business owners and the self-employed.
 

Who will be affected?

Although the exact details are not currently available, the key changes will affect both employers and individuals.

HMRC will be looking for the following information to be reported to them from April 2025:

• Shareholders in owner managed businesses (OMBs): Where dividends are paid to shareholders in owner-managed businesses, the details of their percentage shareholding, alongside the dividend on the shareholder’s Self-Assessment Tax Return, will need to be declared.
• Self-employed: Start and end dates of self-employment need to be declared yearly on Self-Assessment Tax Returns.
• Employers: The hours worked by all employees will need to be reported via Real Time Information (RTI) payroll submissions returns.

What is changing, and what are your obligations?

Below is a breakdown of the specific changes, and how and where they will be applied to businesses and individuals:

Shareholders in owner managed businesses (OMBs)

• From the tax year 2025-26, new rules regarding dividend disclosure will be enforced. Individuals associated with owner-managed businesses will be required to use the Employment Pages (SA102) within their Self-Assessment Tax Return, to report dividend income received from their own companies, as well as the percentage shareholding they hold in their own companies. This will apply where the taxpayer is a director and holds shares in a close company.

• HMRC will seek to raise penalties (a fixed penalty of £60) for failure to provide this information.

Self-employed

• Individuals will need to declare when any self employment commenced or ceased from April 2025 onwards. It is unclear how this will be reported to HMRC, but it is likely to be via the Self Employment Pages (SA103).
• The reporting of start and end dates for any self-employments will increase the information that is held by HMRC and allow them to target self-employed individuals, where they consider that the individuals could potentially be employees. The self-employed versus employed status of a taxpayer can be an extremely complex area and in HMRC’s opinion, the length of the self-employment can have an impact on a taxpayers’ status. The reporting of these dates could lead to additional questions being raised by HMRC, therefore impacting the taxpayers’ tax position.
• HMRC will seek to raise penalties (a fixed penalty of £60) for failure to provide this information.

Employers

• Starting from 6 April 2025, employers completing RTI returns will need to supply HMRC with details of the number of hours worked by each employee, in respect of a pay period, provided that the information can be determined. If the information cannot be determined, employers will need to confirm the reason as to why they are unable to do so. This information will enable HMRC to focus on national minimum wage (currently £11.44 for 2025-26) and related living wage compliance.
• The information that should be supplied will vary depending on how the employees are paid:
  • for hourly paid workers, the employer should report the number of hours actually worked.
  • for employees receiving an annual salary, the employer should report the contractual hours as per the employees’ contracts and should also include details of overtime hours paid.
  • for other salary payments, such as statutory payments, termination payments or benefits in kind - no hours would need to be reported.

Plan ahead to ensure compliance

They should review the data that will need providing to HMRC and undertake internal reviews to ensure the minimum wage requirements are being met.

Additionally, new processes and systems may need to be introduced, including the implementation of new payroll or HR systems.
 

Other considerations

Making income tax digital

HMRC’s ‘Making Tax Digital (MTD) for Income Tax’ is a replacement for the Self-Assessment tax return, and upon its implementation will affect the majority of self-employed and/or those that receive property income. MTD supports their plans to digitalise the tax system where taxpayers will need to maintain their records digitally report their income to HMRC digitally on a quarterly basis. MTD for income tax was originally meant to become mandatory from April 2024 however, it has now been delayed until April 2026.

HMRC & Tax Investigations

As mentioned at the start of this article, HMRC collect and hold a vast amount of data which enables them to uncover links between individual taxpayers and businesses, income, assets and transactions.

HMRC collect this data using their Connect system, which can trace even the smallest discrepancy in spending or earnings, prompting an investigation. Many understandably find an HMRC investigation disruptive, intrusive, stressful, time-consuming, and ultimately expensive.

To protect yourself in the event of an investigation, you may want to consider a Fee Protection Service.