By WatkinsonBlack
From April 2025 onwards, company directors completing a self-assessment tax return will notice some important new reporting requirements.
While the changes may initially appear to be a minor administrative update, in reality they represent another step in HMRC’s increasing focus on directors of owner-managed businesses and close companies.
The changes mainly affect directors who have already complete a tax return and will apply from the 2025/26 tax year onwards. For many business owners, it is likely to mean additional information gathering and greater attention to detail when preparing returns.
What Is Changing?
Historically, directors could indicate on their tax return whether they were a company director during the tax year, however completion of these boxes was not mandatory.
Under the new rules, directors will now be required to confirm not only that they were a director, but also whether the company involved is classified as a “close company”.
In simple terms, a close company is typically a company controlled by five or fewer shareholders, or by its directors. Most small family-run or owner-managed businesses fall within this definition.
Where the company is a close company, directors will also need to disclose additional information including, the company name, registration number, amount received, percentage of holding.
Not Every Director Needs a Tax Return
One of the biggest misconceptions surrounding the announcement is the suggestion that all directors will now automatically need to complete a self-assessment tax return.
That is not currently the case.
HMRC removed the blanket requirement for all directors to file tax returns several years ago. Whether a director is required to file still depends on their overall circumstances, such as dividend income, other untaxed income or whether HMRC have specifically issued a return.
The new rules simply mean that where a tax return is already required, additional information must now be included.
Shareholding Calculations Could Cause Confusion
Perhaps the most practical difficulty created by the new rules is the requirement to report percentage shareholdings.
At first glance this sounds straightforward; however many limited companies do not have simple share structures.
Where a company only has one class of shares, calculating ownership percentages is relatively easy. If an individual owns half the shares, they own 50% of the company.
However, many businesses have multiple classes of shares with different nominal values and different rights attached. In these situations, the calculation becomes more complex because HMRC’s guidance refers to the nominal value of shares held rather than simply the number of shares owned.
This means someone holding fewer shares could actually have a larger percentage interest than another shareholder depending on the value and structure of those shares.
For companies with alphabet shares or more bespoke ownership structures, this is likely to create additional work for both directors and accountants.
Changes During the Year
Another interesting aspect of the new rules relates to shareholdings that change during the tax year.
HMRC’s guidance suggests directors should report the highest percentage shareholding held at any point during the year, rather than the position at the year end.
For example, if a director owned 60% of a company for part of the year before reducing their holding to 50%, the figure reported on the tax return should still be 60%.
This approach simplifies the reporting process from HMRC’s perspective, but it may not necessarily reflect the position at the end of the year.
Zero Still Means Something
One area that could easily catch people out is the requirement to enter zero values where appropriate.
If a director did not receive dividends from a close company, or does not personally own shares in the company, the relevant boxes must still be completed with a zero entry.
Leaving the boxes blank is not the same thing.
HMRC may treat missing information as a failure to complete the return correctly, potentially leading to penalties.
There have already been reports of some tax software struggling to accept zero entries in certain fields, so it is important for taxpayers and advisers to review returns carefully before submission.
What Should Directors Do Now?
Although these changes are not overly complicated, they do reinforce the importance of maintaining accurate company records and understanding ownership structures properly.
For directors, particularly those involved in family businesses or companies with multiple shareholders, it would be sensible to start reviewing shareholdings and dividend records well in advance of the next tax return season.
As with many HMRC changes, the additional reporting may initially appear administrative in nature, but the wider aim is clearly to improve visibility over director income, company ownership and close company structures.
For many small business owners, it is another reminder that HMRC continues to move towards more detailed and data-driven compliance monitoring in the years ahead.
WatkinsonBlack have considerable experience in all areas of taxation and business services. This includes providing a very cost-effective payroll bureau service, as well as assisting to ensure compliance with the latest Making Tax Digital legislation. If you are employed or self-employed either as a sole trader, partnership or limited company and want to arrange a no-obligation initial meeting on any taxation or accounting matter then please contact us by telephone on 01925 413210 or by e-mail to info@watkinsonblack.com. Please note that these ideas are intended to inform rather than advise and you should always obtain professional advice before taking any action.
