HMRC Targets SME ‘Tax Gap’
7th April 2026
In an effort to tackle potential tax loss and improve transparency, the UK government have unveiled new proposals requiring close companies (a company controlled by 5 or fewer participators) to report transactions with participators to HMRC.
Concerns over how close companies engage with their participators has resulted in HMRC publishing a consultation document, inviting feedback on the proposed introduction of these new reporting obligations, to try and reduce the ‘tax gap’ between this relationship.
There are already rules in place to manage this relationship, such as a 35.75% (from April 2026) tax charge arising where a participator loan remains outstanding for more than 9 months following the end of the accounting period in which the loan was made. HMRC are now suggesting to go one step further.
What information will companies need to report?
- The amount
- The date
- The recipient’s name, address and National Insurance number. In the absence of a NI number, additional information will need to be provided to help HMRC identify the individual.
What transactions will need to be reported?
- Cash withdrawals
- Loans
- Debts
- Dividends
- Other distributions and transfers of assets to and from the company.
Salary payments to directors, which are already reported through the Real Time Information (RTI) system, will not be included in this new requirement.
How to report?
Although exact details are still being decided, it’s expected that reporting will be required annually as part of the company’s tax return but there is no timeline yet for when the new requirements will start. Penalties for non-compliance will likely follow the usual regime. The government has left open the possibility of introducing specific penalties for deliberately omitting transactions.
Have your say?
Responses to the consultation document are due by 10 June 2026. The consultant document and how to respond can be found here.
New Personal Tax Return
These potentially new additional company disclosures come on top of the 4 extra boxes to complete on 2025/26 self assessment tax returns:
(Document Source: Contains public sector information licensed under the Open Government Licence v3.0)
Disclaimer - All information in this post was correct at time of writing.
