HMRC proposes stricter reporting rules for close companies

The UK government has launched a consultation outlining plans that would require close companies to disclose expanded information on financial dealings with their participators to HMRC.

The proposals are aimed at strengthening tax transparency and tackling what officials see as gaps in current reporting. Although existing rules – such as those governing loans to participators – are already intended to prevent tax leakage, the government believes HMRC still lacks a complete view of how funds and assets flow between close companies and those who effectively control them.

What counts as a close company?

Under UK tax definitions, a close company is typically one that is run by its directors or owned by five or fewer participators. A participator is anyone with an economic interest in the business – for example, a shareholder.

While this status can apply to companies of all sizes, the government notes that it is predominantly a feature of smaller businesses.

New reporting expectations

If taken forward, the new regime would compel close companies to submit details of a broad range of transactions with participators. These would include:

• withdrawals of cash
• loans and debt arrangements
• dividend payments
• asset transfers and other distributions

The consultation clarifies that information already submitted through systems such as RTI for employment income – for instance, director salaries – would not be duplicated.

For each applicable transaction, companies would be expected to provide:

• the value of the transaction
• the date it occurred
• and identifying information about the recipient (name, address and National Insurance number).

Reporting mechanism under review

The government has not yet finalised how often reports would need to be filed. The most likely approach under consideration is an annual return aligned with the corporation tax submission cycle. However, HMRC has asked for input on whether more frequent or real-time reporting could deliver better results.

No implementation timeline has been confirmed, and the consultation period closes on 10th June 2026.

Penalties and further measures

Standard penalties for incorrect or late filings are expected to apply, but the government has opened the door to bespoke sanctions for deliberate non‑disclosure.

Officials are also exploring reforms to personal tax reporting, building on upcoming changes from April 2025 that will see directors disclose more detailed information – including dividend receipts and shareholdings – on their individual tax returns.

In addition, in light of the decision not to proceed with Making Tax Digital for corporation tax, the government has signalled it will work with stakeholders on broader modernisation of the corporate tax framework and further measures to address the small business tax gap.

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