Owner-Managed Business and Directors of Close Companies

Following approval of a statutory instrument, HMRC has confirmed it will be collecting further information from Directors of owner-managed businesses when filing tax returns for the 2025/26 tax year.

From 6 April 2025, individuals will be required to state:

• whether they were a Director of a company in the year
• if yes, whether that company was a ’close company’
• the name and registered number of the close company
• the amount received by way of dividend income during the year (which may be zero)
• the % of the share capital of the close company held, and if the % changed during the year, the highest such % held during the year.

This information will be presented separately from other dividend income. As well as the above, the self-employed will need to provide information on the start and end dates of self-employment via their self-assessment return if their business started or ceased during the year.

Proposed changes to require employers to provide more detailed information on employees’ hours paid has been dropped due to the additional significant administrative burden that it would have created. However, it seems likely HMRC will continue to look at ways to gather data to help them direct their enquiries appropriately, and more changes could be expected in this area.

What is a close company and why the change?

A close company is broadly defined as a UK-resident limited company that is under the control of: 

• five or fewer participators (shareholders)
• any number of participators who are also directors. 

Most owner-managed or family-run limited companies fall within the definition.  

HMRC’s explanatory notes published in 2024 set out the reason for the changes for directors.

“Many individuals who carry on their personal business through a company…remunerate themselves mainly by way of dividends rather than through payments of salary. Under current reporting mechanisms, it is not possible for HMRC to distinguish between the origin of dividends received and whether they are derived from an individual’s own company or as dividends from other sources. This makes it difficult to separate this group out from other dividend taxpayers and to then identify and understand issues they face in making tax easier to get right, for example, ensuring they receive appropriate targeted communications about issues they may encounter in their tax affairs.”

HMRC is clearly collecting more data from multiple sources to bring together information that enables them to more appropriately target tax enquiries, with income tax avoidance through streaming of dividends and use of payroll being of particular interest.

As HMRCs Making Tax Digital is due to commence for larger landlords and self-employed businesses in April 2026, this change is another stepping stone towards real-time reporting of information for all types of income.

We can help you navigate the complexities of the UK tax system and keep you on the right side of the line when it comes to remuneration planning, as well as ensuring the correct information is provided as part of your compliance obligations. Please get in touch with Nick Latimer or your usual Crowe contact to discuss further.