If you run or direct a close company, which is broadly, any company controlled by five or fewer shareholders, it is worth paying close attention to a series of regulatory changes and ongoing Government consultations that could significantly increase your compliance burden.
While these measures are yet to be introduced, they could have a substantial impact on the tax treatment of internal company transaction.
New disclosure requirements on personal tax returns
The close company rules apply to the vast majority of privately owned limited companies in the UK.
Because these businesses are typically controlled by a small number of connected individuals, HMRC has long applied additional scrutiny to how money flows between the company and its directors or shareholders (known as participators).
From the 2025/26 tax year, directors of close companies face enhanced obligations on their Self Assessment returns.
Where a directorship in a close company exists, individuals must now declare the company’s name and registration number, confirm the highest percentage of share capital they have held during the year and report all dividend income received.
This may appear straightforward, but for directors with interests in multiple companies the administrative task grows quickly.
It also signals HMRC’s intent to cross-reference information at source rather than rely on voluntary accuracy.
Further changes under consultation
It is important to note that the most significant proposals are currently at consultation stage and have not yet been enacted.
HMRC is consulting on legislation that would require close companies to automatically report routine transactions involving their shareholders. The transactions in scope include cash withdrawals, loans, debts and asset transfers.
If introduced, this would represent a substantial shift in reporting obligations. Currently, many of these transactions are captured retrospectively through annual returns and tax computations.
Mandatory real-time or periodic reporting would change the compliance model entirely.
The s455 charge
One area that is already firmly established in law is the Section 455 Corporation Tax charge. Where a close company makes a loan to a director or participator and that loan is not repaid within nine months of the company’s year-end, the company faces a Corporation Tax charge of 33.75 per cent on the outstanding amount.
The charge is refundable once the loan is repaid, but the cashflow impact can be significant and the risk of inadvertently triggering it is real, particularly where director’s loan accounts are not monitored regularly throughout the year.
Associated companies and Corporation Tax thresholds
Directors of multiple connected businesses should also be aware of the associated companies rules.
Corporation Tax limits, which determine whether a company pays the small profits rate, the main rate or something in between, are divided by the number of associated companies under common control.
This means connected businesses can find themselves pushed into higher tax bands sooner than expected.
Companies that hold investments rather than trade actively face a further restriction. They are denied access to the small profits rate and marginal relief entirely, meaning the full 25 per cent Corporation Tax main rate applies regardless of profits.
What to do now
While the proposed transaction reporting framework remains under consultation at the moment, the direction of travel is clear.
HMRC is building a more granular picture of close company activity. Ensuring your director’s loan account is in order, your dividend records are accurate and your associated company structure is properly documented would be a sound starting point.
Speak to us if you have any questions about how these changes might affect your position.
