If you own your own business, then HMRC have just introduced new rules for director shareholders that receive dividends. The rules will require you to report more information about your company and the income you derive from it on your self-assessment tax return. So, what have HMRC introduced that will start from 6 April 2025?

More Information

Why does HMRC appear to have concentrated their efforts on pursuing small companies and their owners with introducing new requirement to report income?

In the past if you received dividends from your company, you would report these on your personal tax return as a total figure.  From 2025/26 there will be lots of additional information you will be required to report on your personal tax return in respect of the dividends you have declared.

First new reporting requirement

The first point you must establish is are you a close company? This a HMRC definition and it generally relates to companies that are owned or controlled by five or fewer individuals.

So, if you are a close company, in your tax return for 2025/26, you must indicate whether you were a director of it at any point in the tax year and provide the company’s full name and registration number.

In the past, this information has been optional.

The dividends received by you from each close company of which you are a director must be separately disclosed. Please note that even if the figure is zero you still have to disclose this.

Dividends for close companies are usually dealt with as paid, or they are credited to the Directors loan account

The new requirement includes any dividends that are set off against your director’s loan account with the company

Second new reporting requirement

The last disclosure requires details of the director’s highest percentage of share capital held in the year.

Usually this is very straightforward as small companies have just one class of shares and they do not change.

However, it could prove more challenging where either alphabet shares are involved or class rights/shareholdings have changed during the tax year. So be very careful

Do the new rules apply to you?

For the purpose of the new reporting rule, directors are not limited to those registered at Companies House. You’re also included if you’re a shadow director or you control more than 20% of the company’s ordinary share capital, taking into account the shares owned by your associates

There are two exceptions to the new reporting rules which apply to dividends from quoted companies and companies in a corporate group which is not a close company group.

Record keeping

In order to comply with all of the above from 6 April 2025, directors of close companies must ensure they are keeping detailed records of:

• dividends declared and paid
• date of dividends declared
• make sure the date agrees to the entry in your accounting software
• keep signed minutes of meetings approving the dividends and signed dividend vouchers
• changes to the company’s shareholdings; and
• the rights attaching to every class of issued shares.

I would suggest you make sure that the Confirmation Statement submitted to Companies House agrees with your understanding of the shares that have been issued. The details of the shares should also agree with the financial statements prepared and filed at Companies House.

Penalties

It is interesting that HMRC can charge £60 penalty for each error you make when disclosing this information. So, it could end up being very costly if errors are made!

If you’re a director shareholder of multiple companies, you will need to keep detailed records of which company pays you dividends and the dates. This will make it easier for you to comply with the new reporting rules and not be subject to any HMRC penalties.

Summary

From the tax year 2025/26, if you are a director/shareholder of a close company that pays you dividends, you must declare them separately on your self-assessment personal tax return, instead of showing one total figure. You will need to comply with the other reporting requirements, such as, the company name, registration number, percentage of shares you own. You will also need to ensure the shares details agree with Companies House and the financial statements. It would be best practice to keep minutes of meetings approving the dividends and dividend vouchers and make sure the entries in the accounting software align with the dates of the dividends.

If you wish to discuss the new rules then please contact Kevin@kwaccounting.com

Further Reading:

HMRC’s final guidance on off-payroll work

Garden Office – Tax relief?