From 6 April 2025, directors of close companies will face a notable change in how they report dividend income on their Self-Assessment tax returns.
Under the updated rules introduced by HM Revenue & Customs (HMRC), more detail will be required and is a change set to impact an estimated 900,000 directors across the UK.
More paperwork ahead for directors of close companies
Currently, directors reporting dividend income on their Self-Assessment tax returns are only required to declare the total amount received across all sources.
There is no obligation to distinguish between dividends paid by their own company and those received from external investments or other shareholdings.
From the 2025/26 tax year onward, that will no longer be sufficient.
Directors of close companies will need to itemise dividend income from each company in which they hold shares and disclose additional details, including:
- The name of the company
- The company’s registration number
- The highest percentage shareholding held during the tax year
- The exact amount of dividend income received from that specific company
This information must be presented separately from other dividend income and will become a compulsory part of the Self-Assessment process.
What is a ‘close company’?
A close company is broadly defined as a UK-resident limited company that is under the control of:
- Five or fewer participators (shareholders), or
- Any number of participators who are also directors
In practice, this means most owner-managed or family-run limited companies will fall within the definition.
If you are a director-shareholder in a small private company, chances are your business qualifies as a close company.
Why is HMRC making this change?
The motivation behind the reform is to improve visibility.
At present, HMRC has limited insight into how much dividend income reported by taxpayers originates from their own companies versus external investments.
The changes come amid ongoing efforts by the Government to close the tax gap and improve oversight of owner-managed business structures.
New questions on the Self-Assessment return
In addition to reporting more detailed dividend information, taxpayers will now be required to answer whether they were a director of a close company at any point during the tax year.
This will be a compulsory question on the Self-Assessment form for 2025/26 and beyond.
This means directors must keep accurate records of:
- Changes to shareholdings during the year
- Different share classes and associated rights
- Dividend declarations and payments received
The new disclosure requirements are particularly important for those with more complex shareholding structures or who have changed ownership during the year.
Other developments – Employee hours reporting scrapped
In a separate development, the Government has confirmed that it will no longer pursue the plan to mandate reporting of actual hours worked by employees through payroll.
Originally scheduled for April 2026, the measure was dropped due to the significant administrative burden it would have placed on employers.
The implementation cost was estimated at nearly £60 million.
While this will come as a relief to many businesses, it serves as a reminder that HMRC continues to explore new ways to collect data and increase transparency in other areas.
Preparing for 2025/26
If you are a director of a close company, it’s important to start preparing now for the new requirements. This includes:
- Reviewing your shareholding structure
- Ensuring proper records of dividend declarations are maintained
- Confirming company registration details
The increased scrutiny on dividends highlights HMRC’s ongoing focus on owner-managed businesses.
Ensuring that your Self-Assessment return is accurate, detailed and compliant will be required to avoid delays, enquiries or potential penalties.
Unsure whether your company qualifies as ‘close’? Need help with the upcoming reporting requirements?
Our specialist accountancy team is here to help you with clarity on your company’s status or practical support in preparing for the 2025/26 Self-Assessment changes. Contact us today.