New reporting requirements on the horizon for close companies

HMRC has recently published a consultation titled Reporting company payments to participators — modernising the reporting framework which could have significant implications in redefining the tax reporting framework for closely held companies.

The consultation considers an enhanced or specific reporting regime for transactions between ‘close companies’ and their ‘participators’. If it goes ahead, this will ultimately form a part of the wider modernisation of corporation tax administration. The proposals could significantly impact a high proportion of companies in the UK through increased administrative and reporting obligations.

Close companies (which includes most owner-managed businesses) and their shareholders should be aware of the potential changes. Although this is a consultation, and not yet a confirmed change, it should be read as a clear signal that additional reporting is likely.

Current regime

The consultation primarily, but not exclusively, considers the reporting requirements associated with the loans to participators regime. The regime applies to ‘close companies’, controlled by five or fewer participators or any number of participators who are also directors. A participator is anyone having a share or interest in the capital or income of the company (commonly, but not exclusively, shareholders). As a result, most owner-managed and family business operating through a company are within the scope of the regime.

Under the loans to participators regime, loans made from a close company to a participator are subject to a corporation tax charge at 35.75% (as of 6 April 2026) on the balance outstanding nine months after the end of the accounting period during which the loan was advanced. The regime is, of course, more nuanced and contains various reliefs, exceptions and anti-avoidance rules.

These loans to participators are the primary close company transactions currently subject to enhanced reporting requirements. The requirements are, however, enveloped in the annual corporation tax return (i.e. the CT600 and supplementary pages). The current requirements stipulate that the supplementary CT600A is required where the close company has tax to pay under the loans to participator regime. Additional reporting by both the company and individual participators may be required where loans are repaid, released or written off.

Proposed regime

Despite the existing reporting requirements, HMRC has identified transactions between close companies and their participators as a significant driver of the small company element of the tax gap (that is, the difference between theoretical and actual tax receipts). Increasing the reporting is, therefore, intended both to improve businesses’ record-keeping and provide HMRC with more information to identify where tax may be underreported.

The consultation proposes that close companies should be required to provide full details of all transactions with participators (both individual and corporate), excluding employment income already reported under the real-time information (RTI) system. This transactional level data requirement would apply to:

• cash withdrawals;
• loans and other debts (including releases and write-offs);
• dividends and other distributions;
• transfers of assets from/to the company.

HMRC suggests that the data to be provided will include the recipient (or beneficiary), the amount (or value) and the date of the relevant transaction. In addition, the consultation considers several interesting policy design points, including:

• Whether further changes to personal tax returns are justified to align the information reported by close companies and their participators.
• What information will be reported in connection with participators. Currently the proposals envisage their name, address and national insurance number and seek views on the workability of this in connection with non-employee participators.
• How and when amounts should be reported.
• Whether penalties should be aligned with the existing corporation tax penalty regime or, alternatively, whether a specific penalty regime would be appropriate.

Although HMRC notes that businesses “should already be keeping records of the money that passes between the company and its owners”, the changes are likely to represent an additional administrative burden – with associated costs – for many. The fact that HMRC sees this area as a significant contributor to the tax gap means that there is likely to be change.

However, it is positive that the consultation asks questions about how close companies currently keep records and recognises the need to balance the benefit of additional reporting with the resulting burden on businesses.

The consultation will remain open until 10 June 2026, and we will be submitting a formal response. We aim to keep our clients updated as matters progress. However, if you do wish to discuss these reform proposals on a preliminary basis, please do not hesitate to contact our corporate and business tax team.