HMRC is tightening the rules on what directors of close companies must report on their Self Assessment tax returns for the year ended 5^th April 2026 onwards, with further proposals for more to be added. While these changes don’t increase the amount of tax payable, they will increase the information required, and the risk of penalties should details be missed or reported incorrectly. 

What is a ‘close company’?

A company is ‘closed’ where it is controlled by its directors or by five or fewer participators, typically meaning shareholders or others with an interest in the company’s capital or income. In practice, most small and family‑owned companies will fall into this definition, so these changes will affect a large proportion of owner‑managed businesses. 

New Personal Tax Return obligations from 2025/26

Legislation now in place will require additional information to be included on tax returns for 2025/26 onwards (returns due by 31 January 2027). For directors of close companies, questions that were previously optional will become mandatory and new disclosures are being added. 

For Tax Returns for the year end 5^th April 2026 onwards, a director of a close company must include all of the following in their tax return: 

• Confirmation that they are a director and that the company is a close company. 
• The name and Companies House registered number of each close company of which they are a director. 
• The value of dividends received from each close company during the year, shown separately from other UK dividends. 
• Their percentage shareholding in the company during the year, recording the highest percentage held where shareholdings fluctuate. 

There are also new mandatory requirements for anyone starting or ceasing to trade during a tax year to report commencement and cessation dates on their Returns. HMRC’s stated aim is to improve the quality of data it holds so that it can better link company profits to directors’ and shareholders’ income and target compliance activity more effectively.

Proposed company‑level reporting of transactions with participators

Alongside the director reporting changes outlined above, the government has published a consultation on new reporting requirements for close companies themselves. 

Under these proposals, close companies would have to report details of transactions with their ‘participators’ (such as shareholders) where HMRC perceives a higher risk of tax loss. 

The types of transactions that could be brought into this new reporting regime include:

• Cash withdrawals by participators
• Loans to or from participators
• Debts, dividends and other distributions
• Transfers of assets to or from participators

Items already reported through PAYE real‑time information, such as directors’ salaries, are expected to be excluded. For each in‑scope transaction, it’s expected the company would need to provide the amount, the date and the recipient’s name, address and National Insurance number, or alternative identifying information if the NI number is not known.

The consultation suggests that reporting would probably be on an annual basis, aligned with the corporation tax return, although HMRC has asked for views on more frequent or real‑time reporting. The normal penalty regime would apply, but the government has left open the possibility of specific penalties where transactions are deliberately omitted.

Responses to the consultation are requested by 10 June 2026, and no implementation date has yet been set.

What this means for directors and shareholders

For many owner‑managed businesses, these changes will not alter how they choose to extract profits (for example, via a mix of salary, dividends and loan repayments), but they will increase the level of detail required about those arrangements.

Key practical implications include:

• More detailed record‑keeping: You’ll need to keep clear records of dividends from your own company, separately from other investment income, and an accurate record of shareholdings where there are multiple classes of share or changes during the year.
• Closer scrutiny of profit extraction: By combining director‑level data with proposed company‑level reporting on payments to participators, HMRC intends to be able to spot mismatches, such as low salaries combined with substantial drawings or loans, where the tax treatment may not be straightforward.
• Increased penalty risk: Failure to provide the new information could attract penalties, particularly if HMRC views omissions as deliberate or as part of wider inaccuracies in the Return.

Some professional bodies have already highlighted that, in areas such as complex share structures, working out the ‘percentage shareholding’ HMRC expects may not be straightforward and that clear guidance will be needed. 

The good news…

For existing clients, we’ll include the necessary information in your Return as we prepare it. We know you well enough that we can do this without specifically requesting any extra information from you. 

If you’re not a client…

If you’re a director or shareholder of a close company, now is a good time to review how information about dividends, loans, drawings and shareholdings is captured and stored. We’d recommend that you:

• Confirm whether your company is a ‘close company’ for tax purposes. 
• Review your current profit extraction arrangements and identify what additional information will be needed for Tax Returns in future.

Looking ahead

Any Director will need to be aware of the eventual outcomes of the current consultation. We’ll keep you posted here, but would recommend that all Directors consider putting in place simple processes to track transactions between them and the company to prepare for any future company‑level reporting requirements. 

If you’d like to discuss how these changes could affect you, or if you have concerns about existing loans, drawings or other transactions with your company, please get in touch.