The nature of the relationship between the close company and its participators can mean an increased risk of tax loss for the Exchequer. There is already legislation in place to prevent this, for example, companies must report and pay tax on loans made to participators in certain circumstances. 

However, the government believes that HMRC “is not receiving the full picture in terms of how close companies interact with their participators”, and that further action is required to prevent “error and evasion” and reduce the small business tax gap.  Therefore, the government has published a consultation document seeking views on the introduction of a new reporting requirement for close companies. The key points of the new requirement are summarised below.  

Responses to the consultation are required by 10 June 2026.   

What is a “close company”? 

In broad terms, 

• a company is a close company where it is controlled by its directors or by five or fewer participators; and 
• a participator is someone who has an interest in the capital or income of the company (eg, a shareholder).  

The government notes that “while companies of any size can be close, the vast majority are small”.  

Payments within scope 

The government is proposing that close companies provide HMRC with details of transactions between the company and its participators: 

• including:
  • cash withdrawals;
  • loans;
  • debts;
  • dividends; and
  • other distributions and transfers of assets to and from the company; and
• excluding items already reported to HMRC under the real time information (RTI) system for employment income (eg, salary paid to a director). 

Information to be provided 

It is expected that companies will be required to report the following information for each transaction:  

• the amount; 
• the date; and
• the recipient’s name, address and national insurance number (NINO). Where the company does not know the person’s NINO, it may need to provide additional information to help HMRC identify them. 

Process for making reports 

The government has yet to decide on the format and timing of reports. The most likely option appears to be an annual reporting cycle tied to the existing company tax return. However, the government is interested in hearing views on the benefits, if any, of more regular or real-time reporting. No indication is given as to when the new requirement will begin to apply.  

It is expected that the normal penalty regime will apply to this requirement. However, the government has left open the possibility of introducing specific penalties, for example, where transactions are deliberately omitted. 

Further changes 

The government will also explore whether changes should be made to the personal tax reporting framework, building on the new tax return requirements for directors applying for 2025/26 onwards. Briefly, from April 2025, company directors are required to include additional information in their tax return, including details of the company, any dividends received and their shareholding. An earlier article provides more information.   

Referring to its decision not to introduce Making Tax Digital for corporation tax (CT), the government says that it will work with stakeholders to develop what the future administration of CT should look like. It is also noted that the government “expects to explore other ways in which to address the small business CT [tax] gap in the future”.