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.
Your questions answered
What is a ‘close company’ in simple terms?
A close company is a business that is owned or controlled by a small number of people—typically five or fewer shareholders or its directors. Many owner-managed and family-run businesses fall into this category.
What does ‘participator’ mean?
A participator is someone who has a financial interest in the company, such as a shareholder. This can include anyone who receives dividends, loans, or other financial benefits from the business.
Why is HMRC introducing changes to close company reporting?
HMRC wants greater visibility over how money moves between companies and their owners. This is aimed at reducing errors and tackling tax avoidance—but it also means increased scrutiny for compliant businesses.
What does this mean for a close company business owner?
If you run a close company, it’s more important than ever to ensure your records, dividend procedures, and transactions are accurate and fully compliant. Increased reporting means HMRC will have more data to review and cross-check.
