Company directors will soon face more tax return complexity

Jackie Hall, CTA FCA, partner, RSM - Croner-i

RSM partner Jackie Hall and associate director Matthew Todd explain potential pitfalls for directors when it comes to the next self assessment season in 2025-26 with new reporting requirements on dividends and shareholdings.

In recent years HMRC’s focus has been on reducing the number of taxpayers who are required to file self assessment tax returns. However, for those who still need to file a tax return, new requirements for 2025-26 onwards will require more comprehensive reporting, particularly for business owners and directors of UK resident companies.

For several years, existing boxes on form SA102, the employment pages of the self assessment tax return (SATR), have asked whether the taxpayer is a company director and whether the company is a close company.

Completing these sections will become mandatory from 2025-26 onwards and, in addition, directors of close companies must include the following information in their SATRs for 2025-26 and future years in respect of each relevant close company:

• The name and registered number of the close company.

• The value of dividends received from the close company for the year (reporting those dividends separately to other UK dividends received).

• Their percentage shareholding in the company during the year (based on the highest percentage shareholding at any point in the year if a holding changes during the year).

Broadly, a close company is a UK resident company which is under the control of five or fewer individuals. Following this definition, most small and family businesses operated through limited companies in the UK are close companies.

Similar changes, also taking effect from 2025-26, will make it mandatory to include a start and/or end date where a business operated by the taxpayer commences and/or ceases during a tax year. This will be mandatory on trust and partnership tax returns, as well as individual SATRs.

Importantly, these new requirements will not change who is required to file a SATR.

A new type of penalty has been introduced to address any non-compliance with the new requirements. A new penalty is required because these disclosures should not impact a taxpayer’s income tax or capital gains tax (CGT) liability for a year, so fall outside of the existing penalty framework.  

The penalty is £60 for each failure to correctly supply the additional information requested. It will apply to SATRs from 2025-26, and may be applied to individual, trust and partnership tax returns.

The additional information required for directors of close companies may not always be straightforward to work out and may be open to some interpretation. For example, it is not entirely clear at this stage how HMRC would expect an individual to measure their shareholding in a company if the company has differing classes of share with, say, differing rights to income and capital.  

Given the potential exposure to penalties for failure to comply with this new requirement, further HMRC guidance on these changes would be welcomed, ideally well before 2025-26 tax returns can be filed, from 6 April 2026.