Close Companies in HMRC's Crosshairs: New Reporting Requirements on the Horizon
If you run or advise an owner-managed business, new government proposals could significantly increase your reporting obligations to HMRC. The government has launched a consultation on introducing mandatory reporting requirements for close companies in relation to transactions with their participators, the people who own or have an interest in the company. Responses are required by 10 June 2026.
What is a close company?
The term close company covers a wider range of businesses than many people realise. In broad terms, a company is close if it is controlled by its directors or by five or fewer participators. A participator is anyone with an interest in the capital or income of the company (most commonly a shareholder). The government has acknowledged that whilst companies of any size can technically be close, the vast majority are small, owner-managed businesses. If you run a typical limited company with a small number of shareholders, there is a good chance this applies to you.
Why is this happening?
HMRC's stated concern is that it does not currently receive a full picture of how close companies interact with their participators. The existing rules, which require companies to report and pay tax on certain loans to participators under the section 455 regime, are considered insufficient. The government believes that the current information gap is contributing to error, evasion and the small business tax gap, and it wants more visibility over the flow of money and assets between companies and their owners.
What transactions would need to be reported?
The proposals are broad. The consultation envisages that close companies would be required to report details of:
- Cash withdrawals
- Loans
- Debts
- Dividends
- Other distributions and transfers of assets to and from the company
Transactions already reported through the Real Time Information (RTI) system, such as salary paid to a director, would be excluded. For each transaction in scope, the company would need to report the amount, the date, and the recipient's name, address and National Insurance number.
How and when would reports be made?
The format and timing of reports has not yet been decided. The most likely option is an annual reporting cycle aligned with the existing corporation tax return, though the government has indicated it is open to more frequent or even real-time reporting. No start date has been announced. The normal penalty regime is expected to apply, with the possibility of specific penalties where transactions are deliberately omitted.
What does this mean in practice?
For many owner-managed businesses, the administrative burden could be significant. Directors and shareholders routinely move money in and out of their companies in ways that are entirely lawful but which would fall within the scope of these proposals. The requirement to report NINOs and other identifying information for each transaction adds another layer of compliance that businesses, and their advisers, will need to plan for.
This is still at consultation stage, and the final rules may look quite different. However, the direction of travel is clear: HMRC wants greater transparency around the finances of owner-managed businesses, and this is unlikely to be the last word on the subject.
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