HMRC reporting rules for dividends and working hours to increase IR35 reviews

Set to be implemented from April 2025, HMRC intends to introduce significant changes to the reporting requirements for owner-managed businesses and employers.

Ardent Tide, specialists in self-employed status, protection, and IR35, have been closely monitoring these developments. David Power of Ardent Tide, believes these changes are likely to increase the number of IR35 reviews. He explained, “Although the stated goal is to enhance tax compliance and transparency, focusing particularly on dividend income and employee work hours, it is clear that IR35 is very much on the minds of HMRC when introducing these changes.”

He further outlined the potential impact on owner-managed companies in the construction industry, particularly those contracting via a Personal Service Company (PSC).

New Dividend Disclosure Rules

From the proposed 2025-26 tax year, individuals associated with owner-managed businesses must differentiate their dividend income from their own companies from other sources on their self-assessment tax returns. “It is no coincidence that this information is proposed to be included in the employment section of tax returns, indicating HMRC’s focus and the obvious IR35 implications.” said Power.

Reporting Employee Working Hours

Beginning in April 2025, employers will report detailed information about the hours worked by individual employees through real-time PAYE reporting.

Impact on IR35 Reviews

Increased scrutiny on dividend income and employee work hours is likely to lead to more IR35 reviews. IR35 rules determine whether individuals working through personal service companies should be classified as employees for tax purposes. The detailed reporting requirements will give HMRC more data to identify potential IR35 cases, thus increasing the number of reviews. This is especially relevant for the construction industry, where personal service companies are commonly used for certain trades and professional services.

While these changes aim to enhance tax compliance and transparency, they also impose additional reporting burdens on businesses and individuals. It is crucial for those affected, especially in the construction industry, to understand these new requirements and prepare accordingly.

For more information and assistance, please contact Ardent Tide, who will be happy to deal with any IR35 queries you may have.