Close companies, open books: HMRC consults on new reporting requirements for close companies

On 19 March 2026, HMRC published a consultation document titled "Reporting company payments to participators – modernising the reporting framework". The consultation seeks views on proposals to introduce mandatory reporting requirements in respect of transactions between close companies and their participators - a broad category that goes well beyond the scope of the existing reporting framework.

The reason for the proposals lies in the scale of the reported small business corporation tax gap standing at £14.7bn, which has been rising since 2011/2012 and which HMRC considers is driven in significant part by the blurring of the distinction between company and personal finances in the close company context, attracting unintentional errors and deliberate non-compliance. As we go on to explain, the implications of this proposal will be felt more widely as closely held companies are not necessarily small. 

This article summarises the current regime governing close companies, explains what the consultation proposes, and considers the potential impact of the proposals in particular for privately-owned groups and private equity-backed structures.

Current regime

What is a close company?

A close company is, broadly, a company that is under the control of five or fewer participators, or under the control of any number of participators who are directors. A company is also close where more than half of its assets would be distributed to five or fewer participators, or to participators who are directors, on a winding up. For this purpose, a participator is defined, broadly, as any person (including an individual or a company) having a share or interest in the capital or income of the company.

As HMRC notes, the vast majority of small businesses are close companies, and the regime therefore affects a very wide range of owner-managed and family businesses. However, the consultation fails to recognise that there are also many medium-sized and large businesses that are “close”, including large privately-owned businesses and certain businesses owned by private equity structures which are technically considered “close”.

Loans to participators

Where a participator takes a loan from, or otherwise becomes indebted to, a close company, the transaction falls within the loans to participators regime found in Part 10 of the Corporation Tax Act 2010 (CTA 2010). The regime was introduced specifically to counter avoidance whereby close companies would make loans to their participators instead of paying taxable dividends or salary.

Under section 455 CTA 2010, the company is charged to corporation tax at the dividend upper rate of income tax (35.75% for 2026/2027) on the value of loans made to participators where the loan remains outstanding for more than nine months after the end of the accounting period in which it arose.

Where a participator repays the loan or the loan is released or written off, the company may claim relief of the tax charge from HMRC. If the company releases or writes off the debt, the participator is charged to income tax on the amount released or written off as if it were a dividend.

Benefits in kind

There are also special rules that charge the company to corporation tax at the dividend upper rate on the value of any benefit conferred on a participator which is not otherwise chargeable to income tax, and is directed at arrangements that seek to circumvent section 455. See our article for further details.

Where a close company incurs expenses in providing benefits to a participator (other than in their capacity as an employee or director where those benefits are chargeable to income tax), those expenses are treated as a distribution under section 1064 CTA 2010. This means the company obtains no corporation tax deduction for the expenditure and the participator is charged to income tax at the relevant dividend rate (up to 39.35%) on the value of the benefit. This provision is widely drawn, but examples of benefits that may fall within section 1064 include the use of company-owned accommodation, the payment of a participator's personal bills, school fees or domestic expenses.

Current reporting requirements

The principal reporting obligation under the loans to participators regime is a supplementary page in the corporation tax return, which must be filed where a close company is liable to a tax charge under section 455. 

Where a tax charge arises at the participator level, the participator must declare this in their income tax self-assessment return. Changes have already been introduced effective for the tax year 2025/26 onwards that require company directors to complete a supplementary page indicating whether the company is close and including:

• the company's name and registration number;
• the amount of dividend income received; and
• the director’s percentage share capital holding (giving the maximum if this changed during the year).

It appears that HMRC’s concern is that the current framework of reporting is triggered only where a tax charge has crystallised under section 455, and HMRC therefore has no systematic visibility of the full range of transactions between a close company and its participators. It is this gap that the new proposals are designed to address.

The HMRC consultation

What do the new rules propose?

HMRC proposes to require close companies to report additional and detailed information concerning their transactions with participators. The transactions proposed to be caught are broad in scope, including:

• cash withdrawals and other payments via cash, bank transfer or otherwise;
• loans;
• dividends and other distributions;
• sales and purchases of assets to and from the company; and
• any other transfer of value from the company to a participator.

For each transaction, the required details will, at a high level, include the identity of the recipient, the amount and the date. The proposed reporting requirement extends to transactions with all participators, including corporate participators. The only exception currently under consideration is for transactions already reported to HMRC under the Real Time Information (RTI) system, e.g. salary paid to a director.

Notably, the proposals also capture repayments of loans by participators to the company, as well as instances where the company releases or writes off a loan. This would enable HMRC to monitor whether relief from the section 455 charge has been properly claimed and whether income tax charges arising have been correctly reported.

The method and frequency of reporting remain undecided. HMRC's preferred option appears to be an annual reporting cycle tied to the corporation tax return, potentially via an updated CT600A or a new bespoke digital solution. More frequent or real-time reporting has not been ruled out.

The consultation asks how relevant information should be delivered to HMRC. A particular issue is the requirement to provide identifying details for participators (such as National Insurance numbers), which may be challenging where the participator is not employed by the company, where other entities are interposed between a company and an individual participator, or where transactions occur at the direction of an individual participator such that the anti-avoidance provision applies.

Interaction with the wider HMRC reporting initiatives

HMRC notes that the consultation aligns with HMRC's broader Transformation Roadmap, published in July 2025, which confirmed that Making Tax Digital (MTD) will not be extended to corporation tax. Rather than seeking to replicate the MTD model, HMRC intends to work with stakeholders to develop an appropriate framework for the future administration of corporation tax.

A separate but related development is HMRC's International Controlled Transactions Schedule (ICTS), which is intended to capture data on cross-border transactions potentially subject to transfer pricing. Entities in scope are expected to be UK-resident businesses with aggregate cross-border transactions above a specified threshold (£1m was suggested in the spring 2025 consultation). See our article for further details on the ICTS.

While the proposed close company reporting is aimed principally at small businesses, it will certainly capture many medium and large privately-owned or, potentially, private equity-backed, businesses. Therefore, a close company caught by the new reporting requirements may also be part of a group that is subject to the ICTS. In those cases, certain intra-group transactions could in principle be reportable under both regimes, raising questions about duplication of reporting obligations that HMRC will need to address in designing the final rules.

For large businesses in particular, the reporting burden is getting increasingly complex, with other recent developments (to name a few) including Pillar Two reporting (for those in scope), as well as the anticipated widening of the requirement to report “uncertain tax treatments” (currently under consultation titled “Extend Notification of Uncertain Tax Treatment (UTT) regime”). 

Potential impact

Privately-owned groups of companies

The existing reporting obligations under CT600A are oriented towards loans made to individual shareholders and directors, where a section 455 charge has arisen. The proposed new rules would, however, extend mandatory reporting to all transactions with all participators, including corporate participators.

For privately-owned groups of companies, this raises the prospect of a very significant reporting burden. Where a close company is part of a group, intra-group transactions, such as intercompany loans, asset transfers, and dividend flows, may all potentially fall within the scope of the new reporting requirement if the recipient entity qualifies as a “participator”. The consultation itself acknowledges that this may be complicated and raises it as an open question.

Crucially, while the current reporting framework focuses on so-called “upstream” loans and benefits (i.e. those provided by the close company to its individual participators), the new reporting regime may also apply to transactions where the company is the borrower, the beneficiary or just a counterparty in an asset transfer transaction, which covers various company funding arrangements and group reorganisations. For example, this would require a close company to report to HMRC how it receives financing from its shareholders or when it decides to distribute an asset in specie to its shareholder company.

Private equity-backed structures

A significant proportion of private equity-backed businesses are close companies. This is because private equity funds are typically structured as limited partnerships, and under the attribution rules in the definition of a close company, the rights and powers of a partner in a partnership are attributed to all of the partners. As a result, where a fund limited partnership sits at the top of a holding structure, the rights held by the limited partners in the portfolio company are attributed to the other partners. In practice, this means that many groups majority owned by fund partnerships may fall within the close company definition. Critically, this outcome arises by virtue of the attribution mechanism and applies regardless of the number of commercially unconnected investors in the fund.

Such structures will therefore face the same issues as privately-owned groups in relation to the proposed reporting requirements. The broad scope of transactions covered, and the potential extension to corporate participators, could give rise to a very large number of reportable transactions within a typical private equity holding structure, particularly where value is being deployed across a portfolio via intra-group loans, management fee arrangements and asset transfers.

Given that additional reporting requirements for businesses owned by private equity funds do not appear to be a policy target of HMRC’s consultation, it may be appropriate to introduce an exemption from additional reporting for groups held by widely held funds.

Retention of existing exemptions

A concern that practitioners may wish to raise in their responses to the consultation is whether the existing exemptions from the loans to participators regime under Part 10 CTA 2010 will be preserved and aligned with any new reporting obligations. The consultation proposes that close companies report transactions with all participators broadly defined but does not address how the new reporting framework will interact with the categories of transactions that are currently outside the scope of the charging provisions.

The current regime contains a number of important exemptions. Most notably, the loans to participators charge does not apply where the company is controlled by the Crown, or where the loan is made to a participator in their capacity as an employee or director and the amount outstanding does not exceed £15,000 (provided the participator works full-time for the company and does not have a material interest in it). In addition, loans made in the ordinary course of a business that includes the lending of money are excluded from the charge, as well as ordinary trade debts (unless the credit period exceeds six months or is longer than that normally given to customers). Short-term loans that are repaid before the nine-month deadline also effectively fall outside the charge.

If the new reporting obligation is drafted without carving out transactions that fall within existing exemptions from the charging provisions, companies could find themselves obliged to report transactions for which no relevant tax liability arises, and which Parliament has positively chosen to remove from the scope of the regime.

Conclusion

The consultation represents a significant step change in the level of disclosure expected of close companies and raises important design questions that remain unanswered, such as the reporting of intra-group transactions, the interaction with the ICTS, the position for partnership-owned structures, and whether existing exemptions from the loans to participators regime will be preserved. The consultation closes on 10 June 2026, and it is hoped that the Government will refine its proposals to be more proportionate and targeted.