HMRC have published a response to their consultation, 'Reporting company payments to participators - modernising the reporting framework'. Following the overall negative response to the consultation, the government is not proceeding with the proposed new rules at this time.
The Consultation, which ran from 19 March to 10 June 2026, set out proposals to mandate more detailed reporting of transactions between close companies and their participators. It proposed that:
- Close companies would be required to provide HMRC with detailed information on transactions between the company and its participators, at least annually, and possibly more frequently, including:
- Payments, via cash, bank transfer or otherwise.
- Sales of assets to and purchases of assets from the company.
- Dividends or other distributions.
- Any other transfer of value from the company to the participator.
- The normal Corporation Tax (CT) penalty regime would apply, with specific penalties for the deliberate omission of transactions.
HMRC stated that the intention behind the proposals was to aid more targeted compliance through better data, and build good habits in small businesses in terms of recognising and tracking the legal separation of the company and its shareholders.
Consultation outcome
HMRC received 1,001 responses to the consultation from businesses, individuals, agents and representative bodies.
The majority of respondents were negative about the proposals because of increased costs and burdens. Advisers who responded were generally positive, seeing the proposals as encouraging better record-keeping and helping tax compliance.
- Nearly all respondents stated that the close company definition, obligations on Directors' Loan Accounts, and general terms (for example, ‘participator’) were not well understood by individuals and businesses. Many respondents felt that the guidance in this area is fragmented, overly technical and hard to navigate.
- HMRC argued that the responses clearly show that a significant number of small companies do not recognise the tax implications when the owners of a company take money from it, or that they should already keep records of transactions between themselves and the company. This lack of understanding can lead to non-compliance. It would also make it more difficult to comply with any new reporting requirements, as some companies would not understand which entities and transactions are in scope.
- Respondents generally felt that the proposed increased reporting would mean a greater reliance on advisers, particularly if the reporting was more than annual, with the majority also raising concerns about increased administrative burdens and costs, including higher advisory fees.
- Most respondents did not object to using the existing CT penalty framework, but proportionate implementation was a concern. There were recommendations for a grace period at the beginning, extensive guidance before implementation and focusing penalties on repeated or intentional failures.
- Specific points were also raised around excluding companies in administration/liquidation and ensuring that existing exemptions to loans to participators should continue to apply, as well as the impact on medium and large companies and collective investment vehicles where the scale of what would be required would be significant but risk was felt to be low.
The government announced at Budget 2026 that it has decided not to implement the new reporting requirements at this time, on the basis that:
- The consultation responses show that companies are struggling to meet their existing reporting obligations. Further consideration of the options is necessary to ensure that additional burdens on taxpayers are proportionate and staged.
- More consideration needs to be given to embedding fundamental tax obligations in the smallest companies before increased reporting is further considered.
The government has said that it will bear in mind the feedback received on the proposals as it continues to review CT reporting more generally through the Call for evidence on Modernising the Administration of Corporation Tax.
Useful guides on this topic
Loans to participators (Close Company Loans Toolkit)
What is the Corporation Tax treatment when a close company makes a loan to a participator (director-shareholder)? How do the 'bed and breakfasting' rules work? What are the concerns with indirect loans, upstream loans and MBOs?
Close companies, definitions & control
What is a Close company? What are the tax consequences? What is a Participator? What is meant by Control of the company? What are the tests for Control?
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