Small company directors now required to provide more information to HMRC

Directors of close companies must now complete extra pages of their Self Assessment Tax Returns from 2025-26 to provide shareholdings and dividend details on the employment pages.

A close company is a company where:

• it is under the control of five or fewer participators or any number of participators if those participators are directors, or

• more than half of its assets would be distributed to five or fewer participators, or to participators who are directors, in the event of its winding up.

A participator is normally a shareholder in the company.

Smaller, owner-managed limited companies, mostly where the directors are also shareholder and decide on their salary and dividends paid, tend to be close companies.

Directors of close companies will need to complete a separate employment page on their Self Assessment Tax Return from 2025-26 for each close company they are a director of.  This will be a requirement even if the director has no salary, no dividends or shares in the company.

On each relevant employment page, where the person is a director of a close company, they must provide detail of:

• name of the close company

• company registration number

• amount of any dividends received from the company (even if this is zero), and

• the total percentage of the share capital owned.

The total percentage of the share capital owned should be based on the highest level in the year of the director’s interest in the total nominal share capital of the company, even if different classes of shares exist in the company. This could lead to a director disclosing a high percentage interest in the total share capital of a company, with many classes of ‘alphabet’ shares, with no dividends being paid in the year to the director, where the share class held by the director has a relatively high nominal value but little real value in total.

Using the additional information box on the Tax Return, aka the ‘white space’, to disclose a list of directorships and the relevant details noted above will not suffice. People who fail to provide this information, in the correct format on the employment pages of their Tax Return, may be liable to a £60 penalty from HMRC.

This could mean that directors may have to start completing a Self Assessment Tax Return, just to disclosure their interest in a close company, even if they receive no salary or do not own any shares in the company. Over recent years, HMRC have been taking directors out of Self Assessment where they are just a director, with no income tax due, simply because of their directorship or a modest salary already taxed through PAYE.

HMRC say that smaller businesses cause 60% of the overall lost tax, what HMRC call the ‘tax gap’, and also a significant amount of lost Corporation Tax. HMRC report that owners of smaller businesses under report their taxable income; claim more in expenses than allowed; make errors in their accounting records and fail to distinguish between private and company costs. Directors are no expert bookkeepers or accountants and so may categories payments in correctly. However, a competent experienced accountant, who prepares the year end Financial Statements, should be able to ‘tidy up’ and regularise these payments into appropriate and correct categories in the Financial Statements, with no result loss in taxation to HMRC.

The 2005 Budget included plans to make close companies, mostly very small companies, to provide far more detailed information regarding transactions with participators (aka shareholders), including dividends and other payments made to or on behalf of the company’s directors.

As well as dividend and salary payments, the proposed disclosure rules for close companies would require them to provide details of other payments, loans and transfers of assets between the company and its directors. This could amount to a lot of detailed information, and for each director. HMRC would be receiving more information on how money is being extracted from smaller companies, putting the spot light on the profit extraction and other company payment amounts.

The Association of Taxation Technicians recently on their website that, ‘Whilst HMRC have an established position of not requiring an SA102 page to be completed for directorships where no salary or benefits in kind are received, it is likely that the SA102 will now need to be completed in those cases.’