Directors of close companies will face increased reporting requirements from the 2025/26 tax year as HMRC continues its focus on improving transparency around dividend income and owner-managed businesses.
Under the new rules, directors completing self-assessment tax returns will need to provide additional details for each close company directorship they hold, even where no salary or dividends have been received.
The changes come as HMRC attempts to reduce the UK tax gap, currently estimated at more than £45 billion, with small businesses accounting for a significant proportion of unpaid tax.
Rachel Hay, Partner at Forrester Boyd, said:
“HMRC is clearly increasing its scrutiny of owner-managed businesses and company directors. The additional reporting requirements are designed to make it easier to cross-check dividend income and identify discrepancies between personal tax returns and company accounts.”
Directors will now need to disclose the company name, company registration number, percentage shareholding and the amount of dividend income received from each close company.
The focus on dividend income reflects the fact that, unlike salary or savings income, HMRC has historically had less third-party information available to verify whether dividends have been correctly declared.
Further changes could also be on the horizon. HMRC is currently consulting on proposals that may require close companies to report additional information including director loans, cash withdrawals and transfers of assets between directors and their companies.
For some business owners, the increasing administrative burden may prompt a review of whether operating through a limited company remains the most suitable structure. Rising tax costs and additional compliance obligations have already made unincorporated business structures more attractive in certain situations.
The changes highlight the importance of maintaining accurate company records and ensuring personal tax returns fully reflect all income received from owner-managed businesses.
Self-assessment tax return notes (7.1 to 7.4 relate to the new reporting requirements) for the employment section can be found here.
All data and figures referred to in our news section are correct at the date of publishing and should not be relied upon as still current.
