Heads up for company directors

From the 2025/26 tax year, directors of close companies and self-employed taxpayers will have to provide more information in their Self Assessment tax returns than in previous years.

These changes stem from the Income Tax Regulations 2025 and will continue to apply to returns for the 2025/26 tax year along with all subsequent years until further change (i.e. returns filed from 6 April 2026 onwards).

Who is affected?

The government estimates that the new rules will impact approximately:

• 900,000 company directors
• 1.2 million taxpayers carrying on a trade (including sole traders, partners and trustees).

These measures are targeted at:

• Directors of close companies who receive dividends from their own company
• Taxpayers who start or cease trading during a tax year (including partnerships and trusts)

It’s important to note, these rules don’t change who has to file a tax return, they simply increase the amount of information disclosed on required returns.

What is a “close company”?

Very broadly, a close company is one that is one of the following:

• controlled by five or fewer participators (typically shareholders)
• controlled by its directors.

By definition, this captures most small, family-owned and owner-managed companies in the UK.

New reporting for directors of close companies

Commencing from the 2025/26 tax year onwards, existing questions in the Self Assessment return that enquire whether you are a company director and whether the company is a close company will become mandatory.

If you are a director of a close company, you will also be required to provide additional information for any close company in which you hold titles as a director and a shareholder. When filing a return you will need to present:

• The name of the close company
• The company’s registered number
• The total value of dividends you received from that close company during the tax year, shown separately from other UK dividend income
• Your percentage shareholding in the company during the year

If your shareholding percentages change during the tax year, you must report the highest percentage at any point during that tax year.

Note, you need to disclose these in addition to the standard requirement to report your overall dividend income.

New rules on reporting the start or cessation of a trade

The tax return has, for some time, included boxes asking when a trade has started or ceased, though these options have been optional up to and including 2024/25.

From the 2025/26 tax year onwards, it’ll be compulsory to provide this information, which will affect the following:

• Individuals with self-employment
• Partnerships
• Trustees with trading activities

If during the tax year a business starts or ceases trading, the tax return must reflect this. HMRC’s initiative is to improve the quality of data it holds about businesses and their activity, and to use this to make adjustments to other parts of the tax system (for example, basis period rules and eligibility for certain reliefs).

Penalties for missing or incorrect information

As these new disclosures don’t directly contribute to any changes in how much income tax or capital gains tax you owe, they fall outside the existing penalty regime. Therefore, a new fixed penalty has been created.

• From 2025/26 onwards, for each failure to provide the correct additional information there will be a £60 penalty.
• The penalty can apply to individual, trust and partnership tax returns.

In layman’s terms, if a director fails to provide full details for a number of close companies, each omission or error could come with a separate £60 penalty.

Other proposals that have not gone ahead

These measures have emerged from the government’s desire to improve the accuracy of data HMRC collects from taxpayers and employers. Some other broad ideas have been mentioned:

• Proposals for employers to provide extra data on employees (such as more detailed hours worked via RTI) are not being pursued.

For now, the primary focus of the changes are on additional information from self-employed taxpayers and close company directors through the Self Assessment system.

What directors and traders should do now

To prepare for the 2025/26 return cycle, it would be advisable to:

• Review your company status
  • Confirm whether your company is a close company under HMRC’s definition.
• Tidy up dividend records
  • Make sure that it is possible to easily identify dividends received from your company, separate from other investments.
  • Check that you have the company registration number to hand.
• Track shareholdings carefully
  • Keep note of changes in share capital or share classes.
  • Record the highest percentage of shareholding during the tax year, especially if there are multiple share classes or transfers in this time.
• Record start and end dates of trading
  • If you have started a business during the tax year, make sure to note the commencement date.
  • If you ceasing a trade, be clear about the effective cessation date, this can affect reliefs and how profits are taxed.
• Update your accounting and tax software
  • Ensure your systems (or spreadsheets) capture any extra data necessary for when your 2025/26 return is due.