Close Company Dividend Reporting Changes

From the 2025/26 tax year, HMRC has introduced significant changes to how dividends from close companies are reported on Self-Assessment tax returns. These reforms are aimed at increasing transparency around owner-managed businesses and ensuring more accurate reporting of income.

What is a Close Company?

A close company is broadly defined as a company controlled by five or fewer shareholders (known as participators), or by its directors. In practice, this means most small, family-run or owner-managed limited companies fall within the definition.

What’s Changing?

Previously, directors only needed to report their total dividend income, regardless of source. From 2025/26 onwards, this approach is no longer sufficient. Instead, directors of close companies must provide a more detailed breakdown of their dividend income.

New mandatory disclosures include:

• Confirmation that the individual is a director and that the company is a close company
• The company’s name and registration number
• The total dividends received from that specific company
• The individual’s percentage shareholding (typically the highest held during the year)

Importantly, dividend income from a close company must now be reported separately from other dividend sources.

Why the Change?

HMRC’s objective is to gain clearer insight into how directors extract income from their businesses. Historically, combining all dividends into one figure made it difficult to distinguish between investment income and remuneration from a personal company. These new rules allow HMRC to better assess compliance risks.

Penalties for Incorrect Reporting

A new penalty regime has been introduced alongside these requirements. Failure to provide the additional information, or submitting incorrect details, can result in a fixed penalty of £60 per omission. This applies even if the underlying tax liability is unaffected, reflecting HMRC’s increased focus on data accuracy.

These changes represent a shift towards more detailed personal tax reporting for company directors. With additional disclosures now mandatory, maintaining accurate records of dividends, shareholdings, and company details will be essential to avoid penalties and ensure compliance.

Get in Touch

For more information or advice, please speak to your Whitings LLP contact or your local Whitings LLP office.

Disclaimer - All information in this post was correct at time of writing.