Recent developments indicate a clear shift in HMRC’s approach to monitoring dividends and transactions between companies and their shareholders. With new consultations and expanded data collection, there is a growing focus on transparency and compliance for close companies.
New consultation: reporting company payments to participators
A new consultation, Reporting company payments to participators, has been published, seeking views on proposals to introduce enhanced reporting requirements for close companies.
The government’s position is that the risk of error and tax non-compliance is higher in close companies, where the distinction between the company and its participators can become blurred. HMRC has identified that it does not currently have full visibility over how these companies interact with their shareholders.
Under the proposed framework, close companies may be required to report detailed information to HMRC on transactions with participators, including:
- payments made by cash, bank transfer or other means
- loan repayments and loan write-offs
- sales of assets to the company
- purchases of assets from the company
- dividends and other distributions
- any other transfer of value from the company to the participator
Salary and wage payments are expected to remain outside the scope of these requirements, as they are already captured through PAYE reporting systems.
If implemented, these proposals would represent a significant increase in reporting obligations and HMRC oversight.
Expanded dividend reporting through self-assessment
In addition to the consultation, Finance Act 2024 introduced powers allowing HMRC to collect more detailed information through self-assessment tax returns.
From the 2025/26 tax year onwards, company directors will be required to disclose additional information, including:
- whether they were a director of a company
- whether the company was a close company
- the company’s name and registration number
- the amount of dividends received from the close company during the tax year
- the highest percentage shareholding held during the tax year
This enhanced reporting framework provides HMRC with greater insight into the relationship between directors, shareholders and their companies, particularly in relation to dividend extraction.
A clear direction of travel
Taken together, these developments point to a more data-driven and compliance-focused approach from HMRC. With increased access to information on dividends and participator transactions, discrepancies are more likely to be identified.
For business owners operating through limited companies, it is increasingly important that dividend procedures are robust, properly documented and aligned with both company law and tax legislation.