Thousands of family-run and owner-managed companies could face significantly greater tax reporting obligations as HMRC increases its focus on so-called “close companies”.
A close company is broadly one that is controlled by five or fewer shareholders, or by shareholders who are also directors. While the definition can apply to businesses of all sizes, it covers the vast majority of privately owned and family-run companies in the UK.
Recent changes and proposed reforms suggest HMRC is seeking a much clearer picture of how money moves between companies and their owners. The measures form part of a wider effort to reduce the small business tax gap and improve visibility over transactions that may otherwise be difficult to monitor.
One of the first changes has already arrived. From the 2025/26 tax year, directors of close companies who complete a self assessment tax return must provide additional information about their company interests. This includes details of the company, their shareholding percentage, and dividends received from their own company, which must now be reported separately from other dividend income.
The increased reporting is accompanied by higher tax costs in some areas. For example, the tax charge that can apply when close companies make loans to shareholders has risen to 35.75%, increasing the financial consequences of leaving director or shareholder loans outstanding.
However, the most significant development may still be to come.
HMRC is currently consulting on proposals that would require close companies to provide detailed information about transactions with shareholders and other participators. The suggested reporting could cover dividends, loans, cash withdrawals, asset transfers and other movements of value between a company and its owners. In many cases, HMRC would receive details of the amount, date and recipient of each transaction.
Supporters of the proposals argue that they will improve transparency and help ensure the correct amount of tax is paid. Critics, however, warn that the changes could create a substantial compliance burden for small businesses that are already facing increasing administrative requirements.
The proposals also come alongside wider tax administration reforms. Mandatory payrolling of benefits-in-kind is due to begin from April 2027, while Making Tax Digital continues to expand its reach across the tax system.
For directors and shareholders of owner-managed businesses, the direction of travel is clear. HMRC is seeking more detailed information, more frequently, and with greater visibility over how profits and assets are extracted from private companies.
While many of the proposed measures remain under consultation, businesses may benefit from reviewing their record-keeping and company transactions now. As reporting requirements increase, maintaining accurate and comprehensive records is likely to become more important than ever.
