The government considers the risk of error and tax evasion to be highest in ‘close companies’. In such cases, the legal distinction between the company and its ‘participators’ is sometimes misunderstood, and the level of control can enable tax avoidance.
A company is treated as a close company if it is controlled by its directors or by five or fewer participators. A participator is an individual who has an interest in the capital or income of the company, such as a shareholder.
HMRC believe they are not receiving the full picture on how close companies interact with their participators.
A new consultation, ‘Reporting company payments to participators’ has been published inviting views on proposals to introduce new requirements to report transactions between ‘close companies’ and their ‘participators’ to HMRC.
Under the proposals, close companies will be required to provide HMRC with detailed information on transactions between the company and its participators, including:
- Payments, via cash, bank transfer or otherwise.
- Loan repayments and write offs.
- Sales of assets to the company.
- Purchases of assets from the company.
- Dividends or other distributions.
- Any other transfer of value from the company to the participator.
Salary and wage payments would not need to be reported under any new mechanism introduced, as they are already captured as part of PAYE reporting.
We are monitoring this development closely and will keep you updated as plans develop.
2025/26 Tax Returns
HMRC are already collecting the following additional data on the Employment pages of the 2025-26 Self-Assessment Tax Returns from ‘participators’:
- The name of the ‘close company’ and its registration number;
- Dividends received from the ‘close company’ during the tax year; and
- The highest percentage shareholding held during the tax year.
Combined with the above consultation and more detailed disclosure requirements, HMRC will have access to more information on dividends and transactions with ‘participators’ than they’ve had before.
It pays to make sure that your dividend procedures are tight, lawful and compliant!
If we can be of any help with your reporting requirements, please do not hesitate to contact a member of our Business Services Team on 01223 810100.
