HMRC consultation on new reporting requirements for close companies

HMRC has opened a consultation that could materially change compliance expectations for close companies.

The consultation, Reporting company payments to participators — modernising the reporting framework, proposes a new requirement for close companies to report transactions with their participators.

While presented as a data-gathering exercise, the proposals are wide-ranging and, if implemented, would introduce an additional layer of reporting and governance requirements for many family-owned, owner-managed and private businesses.

Why this matters

HMRC estimates that small businesses account for around 60% of the UK tax gap, with close companies seen as a particular risk area due to the potential for company and personal finances to become blurred.

The consultation highlights two key areas of concern:

• under-reported income and over-claimed expenses, and
• error or evasion in transactions that occur between a company and its owners.

The proposed changes are aimed at giving HMRC earlier visibility of transactions that may indicate these risks.

Who and what would be in scope?

A close company is broadly one that is controlled by five or fewer participators, or by any number of participators who are also directors.

Although commonly associated with owner managed businesses, the close company definition is wider and can also apply to larger businesses.

As a result, the proposals are likely to be relevant to a much broader range of businesses than might initially be assumed.

HMRC is consulting on mandatory reporting of most value transfers between a close company and its participators, including:

• cash withdrawals;
• loans and advances (wider than the current loans to participators charge);
• repayments, releases or write offs of loans;
• dividends and other distributions; and
• transfers or sales of assets between the company and participators.

Only employment income already reported to HMRC via Real Time Information (RTI), the PAYE reporting system, is currently proposed to be excluded.

What is the potential impact?

If implemented, the proposals would increase transparency for HMRC, and for close companies, will likely result in:

• increased compliance and reporting obligations;
• additional administrative costs; and
• a higher premium on robust governance, record keeping and decision making around participator transactions.

For many businesses, this may require more formal processes around transactions that are currently dealt with informally or reviewed only at year end.

As with other recent HMRC initiatives, the direction of travel suggests a continued shift towards more real-time visibility of taxpayer behaviour.

Next steps

The 12-week consultation runs until 10 June 2026 and HMRC is inviting both full and partial responses focused on the aspects that are most relevant to you.

You can read the full consultation here: Reporting company payments to participators — modernising the reporting framework - GOV.UK.