UK and International Tax news

Reporting Company Payments To Participators

Thursday 26th March 2026

HMRC is seeking views on proposals to introduce new requirements to report transactions between close companies and their participators to HMRC, and is consulting on the scope of the transactions to be included, and the specific requirements as to what will need to be reported, including the format and timing.

The government recognises that small, self-run and family-owned businesses play a vital role in the UK economy and the majority of such businesses seek to operate responsibly and comply with their tax obligations.

HMRC however is concerned that the small business tax gap is 60% of the overall tax gap, and the small business corporation tax gap makes up a significant proportion of this. This tax gap has been increasing since the 2011/12 tax year and stands at £14.7 bn or 40.1% of the small business theoretical CT liability for the 2023/24 tax year. Closing the tax gap is one of the government’s priorities for HMRC, ensuring that all companies pay the tax they owe will protect public finances and allow businesses to operate on an even footing.

According to HMRC, the predominant risks contributing to the tax gap in the small company population are under-reported income, over-claimed expenses, and error and evasion in transactions that occur between a company and its owners.

The proposals in this consultation are more directly focused on the second of those risks, but HMRC expects the information to be applied in finding, addressing, and eventually preventing the first.

Close companies are those controlled by five or fewer participators, or by any number of participators who are directors. A participator is a person with a share or interest in the capital or income of a company; usually they are the shareholders. Nearly all small companies are close.

HMRC sees the risks in the tax gap are particularly acute with close companies, where there may not always be a clear distinction in practice between the company and its participators, and the merger of interests and finances can both encourage error and facilitate evasion. In particular it considers that some companies and their participators do not fully understand the significance of operating through a company and the associated obligations. This can particularly be the case where the participators were formerly self-employed, or where careful records are not kept, and where there is a failure to distinguish between the company’s and the participator’s monies.

HMRC also considers that the level of control allows close companies to easily structure their affairs to minimise the tax charge on participators, ranging from benign planning to aggressive avoidance.  This can happen with close companies in a way that is generally not possible for the self-employed, or for companies with a diverse participator base whose primary desire is to maximise the company’s commercial profit.

From this consultation, HMRC seeks to:

  • gauge taxpayers’ understanding of current legislative requirements and establish what support is available to them in this regard
  • gain a deeper understanding about the information currently recorded by close companies in relation to participators
  • obtain views on collecting data and reporting it to HMRC, and whether there are any areas of particular challenge for reporting

It is expected that close companies will have to provide detailed information of transactions between the company and its participators, including payments, via cash, bank transfer or otherwise, sales/purchases of assets to/from the company, dividends or other distributions, and any other transfer of value from the company to the participator.

HMRC expect the information will assist in the delivery of its core functions, supporting customers in complying with their tax obligations and helping to close the tax gap by ensuring that the right amount of tax is paid. However, any new requirements should not introduce disproportionate burdens on companies and should build on their existing record-keeping.

The government expects to explore other ways in which to address the small business CT gap in the future.

The consultation will run for 12 weeks from 19 March 2026 to 10 June 2026.

If you would like more information on the consultation, please contact Keith Rushen on 0207 486 2378.

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