Directors must prepare for new HMRC reporting rules and penalties

If, like many of our clients, you are a Director of one or more owner-managed businesses (OMBs), you may well dread the arrival in April each year of your annual tax return or a request to submit one (either in paper form on in your email Inbox). The bad news is that next year there will be more boxes to complete on the Employment pages.

What’s changing?

As well as having to say if you are a Director and, if you are, whether the company of which you are a Director is close (i.e. controlled by 5 or fewer individuals and their associates – the vast majority of OMBs are), you (or Gravita if we prepare your tax return) will have to show the following additional information for each close company:

• The name and registered number of the close company.
• The value of dividends received from the close company for the tax year (reporting those dividends separately to other UK dividends received).
• Their percentage shareholding in the company during the year (based on the highest percentage shareholding at any point in the year if a holding changes during the year).

This may herald an intention on the government’s part to try to tax all or part of such dividends as employment earnings and therefore liable to employers’ and employees’ national insurance as well as to income tax. This may be a “treat” in store when Chancellor Rachel Reeves delivers her second Budget on 26 November 2025 (Gravita will as usual be providing, a few days afterwards, an in-depth analysis of the measures announced and how they will affect our clients).

We do not know how the percentage holding will be calculated if the company has more than one class of shares with different rights for each class. Will it be strictly numerical (number of shares held/total shares issued) or will weighting have to be applied? We can only hope that HMRC issue useful guidance before the new requirements are in force on 6th April 2026.

Penalties

HMRC’s approach tends to be all stick and no carrot and these additional burdens are no exception. Existing penalties mainly cover late submission of tax returns and underpayment and late payment of income tax and capital gains tax. A new type of penalty has been introduced to address any non-compliance with the new requirements. A new penalty will be levied of £60 for each failure to correctly supply the additional information requested. It will apply to Self Assessment tax returns from 2025-26, and may be applied to individual, trust and partnership tax returns.

We are here to help

As always the Gravita tax team will help you navigate the sometimes treacherous waters of the UK tax system with a view to minimising your and your companies’ tax exposure. Please contact Tom Adcock or Ian MacGillivray for advice on this and any other tax matter.