HMRC scraps employee hours reporting from payroll reforms

Back in August 2024, HMRC announced it was going to defer a payroll reform that it had scheduled for April 2025. It had intended to require employers to provide ‘employee hours reporting’ (the actual hours, rather than the normal hours worked) via RTI payroll software. Instead, it said that the requirement would not come into force until at least April 2026.

Now, in good news for employers and payroll service providers alike, HMRC has decided to scrap the change altogether.

What has employee hours reporting been scrapped?

After HMRC released details of the proposed change, it caused a stir among interested stakeholders. Large numbers of accountants, payroll providers, software developers and others objected. In particular, they felt they were being given too little time to implement the change. In addition, many were worried about the extra cost, hassle and red tape involved in providing employee hours reporting.

HMRC now says it has listened and acknowledges the potential administrative burden that the changes would have imposed.

In an email, HMRC has said:

“Therefore, the draft Income Tax (Pay As You Earn) (Amendment) Regulations 2024 intended to bring in these new requirements will not be progressed further. The current requirement for employers to report normal hours worked will continue.

The government remains committed to data transformation and will continue to focus on other initiatives delivering improved data, including Making Tax Digital for income tax, digitalising business rates and investing in our IT infrastructure.”

Although employee hours reporting will not go ahead, employers should note that they will still need to supply evidence of normal (rather than actual) hours worked to allow HMRC to make National Minimum Wage calculations.

Other changes that will go ahead

Employee hours reporting was one of three changes HMRC planned to make to ‘improve’ the data it collects. It’s worth noting that the other two will go ahead. However, these changes don’t affect payrolls. Instead, they are new reporting requirements for Self-Assessment Tax Returns.

From April 2025, you will (where relevant) have to supply the following information in your tax return:

• The start and end dates of self-employment
• The dividend income of shareholders (in owner-managed businesses)

These changes also have administrative costs. It’s expected that there will be a one-off impact of £9 million for businesses to provide the dividend income information. The figure for providing the self-employment dates will be negligible. However, there will be an ongoing annual cost of £9 million for providing dividend income data. The yearly cost of providing the self-employment information will be about £0.6 million.

What next?

It’s extremely good news that employee hours reporting has been binned. This would have adversely affected many businesses, particularly those with large numbers of employees.

The changes to Self-Assessment Tax Returns are much less onerous. It’s not difficult or time consuming to provide dates of self-employment. Admittedly, it will often be trickier to provide the dividend income of shareholders. However, we can do that for you if we take care of your tax returns.

When it comes to payroll, now might be a good time to review how you do yours. If you want to free up more time and resources in your business, you might want to consider our payroll outsourcing services. Get in touch today to learn more.