Directors of closely held companies will now be required to publish more comprehensive information than before when completing their self-assessment tax returns for the fiscal year 2025/26. In the long run, close companies themselves will also need to provide considerably more comphrensive information.
The issue of dividend income
Unlike savings income, for which financial institutions report details to HMRC, it has historically been challenging for HMRC to verify whether a taxpayer has accurately reported dividend income; especially when this income is derived from a close company and credited to the director’s current account instead of being disbursed.
The current tax gap is estimated to exceed £45 billion, with small businesses accounting for the largest share of this deficit.
HMRC has previously conducted a focused campaign targeting directors suspected – based on an analysis of company accounts – of failing to declare dividends.
Increased information requirements for close companies
There is now an obligation for self-assessment tax returns to include a distinct employment page for each directorship held in a close company, even if no salary or dividends are received. The following information must be provided:
- The name of the close company
- The company’s registration number
- The amount of dividend income received from the company
- The percentage of shareholding in the company
Once the close company is mandated to provide more detailed information, it will enable HMRC to easily cross-reference the two sets of data.
Close company reporting under review
Currently under consultation, HMRC’s proposals may require close companies to report not only dividends but also details regarding cash withdrawals, loans, debts, and asset transfers between the company and its director(s).
The tax implications of operating as a limited company have risen in recent years, making the use of an unincorporated structure a more appealing option. The new reporting obligations are likely to further solidify this trend.
Self-assessment tax return notes (7.1 to 7.4 relate to the new reporting requirements) for the employment section can be found here.