Close Company Dividend Reporting: 2025/26 Changes
Major Changes to Dividend Reporting for Close Company Directors
From April 2025, directors and shareholders of small limited companies—most notably UK contractors—will be subject to significant new obligations when completing their Self-Assessment tax returns. These measures, instituted by HMRC, represent a decisive step towards increased transparency and compliance in the taxation of owner-managed businesses.
Who Is Affected?
A close company is, in essence, any company controlled by five or fewer shareholders (“participators”) or by any number of directors. Nearly all personal service companies, family-run businesses, and contractor limited companies fall under this definition. It is estimated that some 900,000 individuals across the country will be impacted by these reforms.
“The new rules reflect the government’s drive to ensure the integrity of the UK’s tax system, upholding fairness for all.”
What Are the New Reporting Requirements?
Previously, directors simply declared their total dividend income on their tax return. From the 2025/26 tax year, more detailed disclosure is mandatory. HMRC now requires:
The amount of dividends received from each close company—separately from other dividend income.
The full company name and Companies House registration number.
The highest percentage shareholding held during the tax year.
Confirmation of directorship status in a close company (now mandatory).
A new penalty structure reinforces compliance: under the Finance Act 2024, each missing detail in your return could incur a fixed £60 fine.
Quick Reference Table
| Data Required | Old System | New System (from 2025/26) |
|---|---|---|
| Total Dividends | Yes | Yes |
| Company Name & Reg Number | No | Yes |
| Dividends by Company | No | Yes |
| Highest Shareholding | No | Yes |
| Director Declaration | Optional | Mandatory |
| Penalties for Omission | No | £60 per missing item |
Why Has HMRC Introduced These Changes?
The reforms are a direct response to HMRC’s need for more granular data. At present, Self-Assessment returns do not distinguish between dividends paid by a director’s own company and those from external investments. This lack of clarity hampers HMRC’s risk assessment and compliance efforts.
By mandating company-specific details, shareholdings, and clear identification of directors, HMRC will be better equipped to monitor the extraction of profits from owner-managed businesses. This, in turn, supports the broader aim of maintaining the stability and equity of the nation’s tax framework.
Implications for Contractors and Directors
Record-Keeping and Administration
The new rules demand a higher standard of record-keeping. Directors must:
Maintain precise dividend vouchers, reflecting each payment and company details.
Track changes in shareholdings throughout the tax year.
Ensure ready access to their company’s registration number.
While these tasks may be straightforward for single-director companies, more complex share structures or mid-year changes will require careful attention.
Software and Bookkeeping Updates
Accountancy software and internal processes may need updating to accommodate the new data requirements. Consult with your accountant to guarantee compliance.
Penalties and Compliance
With HMRC empowered to levy £60 fines for each missing data point, the cost of oversight is too high to ignore. Every director must instil diligence into their annual reporting.
Important: No Change to Dividend Taxation
It is vital to note that these reforms are purely administrative. The method for calculating dividend tax remains unchanged. Tax rates, allowances, and how dividends interact with salary are not affected. The distinction is solely in how dividend data is reported to HMRC.
Illustrative Examples
Example 1: A director receives £30,000 in dividends from their own limited company and £5,000 from a listed company. Under the old system, a single £35,000 figure sufficed. Now, the £30,000 must be separately identified, with accompanying company details and the highest shareholding percentage.
Example 2: A director begins the year with a 50% shareholding, later reducing it to 25%. They must declare 50% as their highest holding for the tax year, irrespective of subsequent reductions.
Steps to Prepare
Produce and file accurate dividend vouchers—many accounting platforms (e.g., FreeAgent) automate this process.
Record all shareholding changes as they occur.
Ensure you have your company’s registration number on hand.
Communicate with your accountant to verify they are ready for the 2025/26 requirements.
Begin these practices now to ensure a seamless transition.
What Lies Ahead?
This update is part of a broader government strategy to enhance transparency among owner-managed businesses. Some advisers speculate that this could be a precursor to more substantial reforms in dividend taxation.
For the present, the priority is clear: understand your new obligations and avoid penalties by acting now. As always, upholding the principles of good governance and sound record-keeping remains the bedrock of responsible business.
Take Action Now
Review your record-keeping and dividend documentation procedures.
Update your accounting software if necessary.
Arrange a meeting with your accountant to prepare for the new rules.
Being proactive will ensure you uphold your legal obligations and avoid unnecessary penalties, securing both the stability of your business and your reputation as a responsible director.
