Close company dividend reporting for directors from the 2025/26 tax year

From the 2025/26 tax year onwards, directors and shareholders of many small limited companies face new reporting requirements when completing their Self-Assessment tax returns.

The changes are aimed at directors of “close companies” – a term that, in practice, covers the majority of owner-managed and family-owned companies in the UK. Around 900,000 people are thought to be affected.

What is changing

Up to now, directors have declared their total dividend income on their tax return.

From the 2025/26 tax year onwards, this information must be broken down in more detail.

According to the Income Tax (Additional Information to be included in Returns) Regulations – 2025, directors of close companies will need to report:

• The amount of dividends received from their own company, separately from other dividend income.
• The name of the company and its Companies House registration number.
• The highest percentage shareholding they held during the tax year.
• Whether they were a director of a close company in the year (this becomes mandatory – previously it was optional).

A new penalty regime will also be in effect. The Finance Act 2024 created HMRC’s power to request additional data in returns and introduced a fixed £60 penalty for each missing item.

Why the rules are changing

HMRC has stated that the reforms are designed to provide it with more precise data on the amount of dividend income extracted from owner-managed businesses.

Currently, tax returns do not clearly indicate the proportion of a person’s dividend income derived from their own company, making it ‘more challenging’ for HMRC to assess risks and target compliance activities.

The government’s consultation papers explain that by collecting details of company registration numbers, shareholdings and dividend amounts, HMRC will have much greater visibility over how directors extract profits from their businesses.

What is a close company?

A close company is controlled by five or fewer shareholders (known as “participators”), or by any number of directors.

In practice, most small limited companies with one or two directors and a handful of shareholders are close companies.

If you run your own personal service company or family business, you are almost certainly caught by the definition.

Practical implications

For many directors, these changes will mean keeping more detailed records. It will no longer be sufficient to simply record the amount of dividends paid.

You will need to ensure that dividend vouchers and company records are accurate and complete, and that you can easily identify the highest percentage shareholding you held at any point during the year.

This could be straightforward for a single-shareholder company, but more complicated where there are multiple classes of shares, or where ownership changes hands part way through the year.

Advisers expect that software and bookkeeping processes will need to be updated to capture the new details.

The introduction of a specific penalty also raises the stakes.

Directors will need to make sure they provide all the required information when they file their return, as HMRC can now fine them for each missing element.

How this affects tax calculations

It is essential to note that the method for calculating dividend tax remains unchanged.

The new rules are about reporting, not altering the tax rates or allowances.

Dividends from your own company will still be taxed in the same way as other dividends.

For example, the dividend allowance, dividend tax rates, and how they interact with your salary remain the same.

What is new is the requirement to separate dividends from your own close company from other shareholdings when you complete your return.

See our limited company dividends guide for background on how dividends work and the paperwork you should keep.

Examples

Example 1. Take a director who receives £30,000 of dividends from their own limited company and another £5,000 from a listed company they have shares in. Under the old system, they would simply declare £35,000 as total dividends. From 2025/26, they must report the £30,000 separately, include the name and registration number of their own company, and record the highest percentage shareholding they held in the year.

Example 2. If another director started the year with 50% of the shares but later sold part to a family member, reducing their holding to 25%, they would still need to report 50% as their highest percentage during the year.

How to prepare

• Make sure your dividend vouchers are properly produced and stored – these are often auto-generated by accounting software, such as the trusty FreeAgent.
• Record any changes in shareholdings during the tax year.
• Check that you know your company’s registration number, as this must now be included on your return.
• Talk to your accountant or adviser about how they will capture the new data in time for your 2025/26 return.
• Start adopting the new reporting habits now, so that when the changes arrive, you will already be prepared.

What happens next?

These rules are part of a wider package of measures to increase transparency for owner-managed businesses.

Some advisers believe they could be the first step towards bigger reforms to how dividends are taxed in the future.

For now, though, the key is to be aware of the new reporting duties and avoid being caught out by penalties.