Close companies face additional reporting requirements

Further administrative changes are on the cards for close companies, as the Government seeks to gain a better understanding of previously difficult-to-distinguish transactions.

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

A full definition of who qualifies as a participator can be found in CTM60107, but they will generally be shareholders or directors.

A business is controlled by a participator when the participator has voting power, share capital of the company and rights to capital on winding up.

It is worth understanding which transactions may be impacted and how this could change reporting requirements.

Which reporting requirements might change?

The proposed changes will cover a range of transactions, including:

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

It will exclude items that are already reported to HMRC, meaning that the changes will not result in a doubling up of administrative tasks.

To comply with the changes, close companies must provide details concerning the amount transacted, the date and the details of the recipient, including their name, address and national insurance number.

Why are these changes being introduced?

There is no guarantee that these changes will be introduced, as they are currently under public consultation.

However, there is a belief that transactions between close companies and their participators may be an area that is vulnerable to tax loss due to high levels of error and fraud.

Small businesses are seen as being particularly vulnerable to the tax gap, i.e. the difference between the amount of tax owed and the amount collected. They continue to be the focus of scrutiny and tax reform.

As these proposals are still under consultation, there is no clear indication of how and when the reports will need to be made.

The anticipated implementation will see the establishment of an annual reporting cycle that will be tied to the existing company tax return.

This should mean that the obligations will be easier to track, as they will not be an additional requirement.

Our team can help you understand your obligations and keep you updated on the outcome of the consultation.

Speak to our team to take the stress out of company tax compliance.