HMRC is introducing new disclosure rules for directors who receive dividends from a close company. For many business owners, this will change how dividends are reported on self-assessment tax returns, starting from the 2025/26 tax year.
If you are a director receiving dividends, this is the time to review your records and prepare. Good organisation now will make tax filing much easier later.
Why the Rules Are Changing
HMRC is increasingly focused on small and family-owned companies. From April 2025, the level of disclosure required on tax returns will increase to improve transparency about dividend income.
Up until now, directors only needed to report the total amount of dividends received. From 2025/26, dividend information must be reported separately for each close company.
What Counts as a Close Company?
A close company is broadly one that is owned or controlled by five or fewer individuals. This applies to many owner managed and family run limited companies.
HMRC will apply the rules even if:
There are multiple classes of shares
Shareholdings have changed during the year
Directors are not formally registered at Companies House
A shadow director or anyone who controls more than 20 percent of the ordinary share capital will also be included.
What Must Be Reported on Tax Returns?
From 6 April 2025, directors receiving dividends from a close company must provide the following information on their tax return:
1. Company Information
Full company name
Company registration number
Confirmation of whether the director held office at any point during the tax year
2. Dividends Received
Dividends must be reported separately for each close company
Even a zero dividend must be disclosed if you are a director
Dividends used to offset a director’s loan account still count, even if no money was transferred to a bank account
3. Shareholding Details
The highest percentage of share capital held during the year
This may be straightforward where there is one class of shares
It becomes more complex when alphabet shares or changes in share rights are involved
What Does Not Need to Be Reported?
There are two clear exceptions to the new rules:
✔ Dividends from quoted (public) companies
✔ Dividends from companies in a corporate group that is not a close company group
Everything else will be caught by the new reporting requirements.
Record Keeping, What Directors Must Do Now
To comply from 6 April 2025 onward, directors of close companies must keep accurate and up-to-date records of:
Dividends declared and paid
Changes in shareholdings throughout the year
Rights attached to each class of issued shares
Submissions to Companies House can be a reliable source for much of this information. Keeping organised records now will make year-end reporting simpler and reduce the risk of penalties.
Penalties for Incorrect Reporting
If the disclosures are incorrect or incomplete, HMRC can charge a £60 penalty for each error. For directors involved with multiple companies, this could add up quickly.
It is strongly recommended that clients keep a contemporaneous record of which company pays them dividends and when. This will make compliance easier once the new rules take effect.
Preparing for the 2025/26 Tax Year
From the 2025/26 tax year onwards, dividend reporting will no longer be a single total. Directors will need to disclose dividend payments company by company and confirm their percentage ownership.
The best way to prepare is to put a clear record keeping system in place now. For clients with multiple roles or different share classes, planning early will prevent problems later.
Need help reviewing your dividend records or preparing for the rule change? We support directors across Stevenage and Hertfordshire with practical advice to make tax compliance easier. Get in touch, and we will guide you through it step by step.
Want to know more?
You can contact Hammond-Barr accountants on 01438 281281 or via email at [email protected].
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