How will close companies be affected by new reporting requirements?

New reporting requirements are currently under consultation for close companies that could see them managing increased administrative responsibilities.

While some of the details are still being decided, enough is known about the proposals for close companies to need to begin making preparations.

It is worth understanding what is changing so that you can start to prepare early.

What is changing for close companies?

Close companies, those companies controlled by their directors or by five or fewer participators, may soon need to disclose details of transactions with participators in order to stay compliant with changing legislation.

In order to combat the risk of error and fraud, HMRC have felt the need to improve oversight of these transactions.

This means it will soon be necessary to provide details concerning the amount transacted, the date and the details of the recipient, including their name, address and national insurance number.

This will impact a range of transactions, including:

• Cash withdrawals
• Loans
• Debts
• Dividends
• Other distributions and transfers of assets to and from the company

If you currently submit any of this information to HMRC, then you can rest assured that those records will be sufficient to comply with the new obligations.

There is no need to submit the same data twice and the proposals only cover transactions and details that currently fall outside the scope of reporting.

Why are the rules for close companies changing?

Whether due to a lack of understanding or an inability to make accurate filings, small businesses are known to struggle with the current tax system.

This has resulted in a tax gap, the difference between the amount of tax owed and paid, across the spectrum of small businesses.

HMRC has noticed and is trying to eradicate the discrepancy to make the system fairer and to empower the Government to have more funds.

The reporting changes aim to ensure that participator transactions are handled legitimately and that no discrepancies can be introduced.

As for the implementation of these changes, more details will be revealed after the consultation.

For now, it seems that no new deadlines will be imposed as the records will be tied to the company tax return.

Penalties are expected for failure to comply, but it is not yet known whether these will be bespoke or follow an existing approach to penalties.

Regardless of the specific implementation of the changes, it will be necessary to adopt the new approach soon.

Our team can help you to review your record-keeping to ensure that you are prepared when the time comes.

We can also help you manage your participator transactions to ensure that they are compliant and not a cause for concern.

Keep up with new close company compliance measures by speaking to our team today.