Reporting company payments to participators — modernising the reporting framework

Q: Annex

Glossary Close Company (section 439(1)-(3) CTA10 ) A close company is broadly a company: which is under the control of: five or fewer participators any number of participators if those participators are directors where more than half of the assets would be distributed to 5 or fewer participators, or to participators who are directors, in the event of the winding up of the company Relevant person (section 455(6) CTA10 ) An individual or a company, receiving a loan or advance in a fiduciary or representative capacity (for example, a trustee). Participator (section 454(1) CTA10 ) A person having a share or interest in the capital or income of the company. Relevant current legislation Part 10, Corporation Tax Act 2010 Chapter 6, Part 4, Income Tax (Trading and Other Income) Act (ITTOIA) 2005

Question 1

Summary

Accepted Answer

Subject of this consultation

This consultation seeks views on proposals to introduce new requirements to report transactions between close companies and their participators to HM Revenue and Customs (HMRC).

Scope of this consultation

The government is consulting on:

proposals to mandate the reporting to HMRC of transactions between close companies and their participators
the scope of the transactions to be included
the specific requirements as to what will need to be reported, including the format and timing

Who should read this

Individuals, company directors, business owners, tax advisors, practitioners and their representative bodies, tax lawyers and their representative bodies, and non-governmental organisations with an interest in business or tax.

Duration

The consultation will run for 12 weeks starting on 19 March 2026 and ending on 10 June 2026.

Lead official

The lead officials are Lorraine Coster and Stephanie Martinez of HMRC.

How to respond or enquire about this consultation

You can respond to this consultation by submitting this form by 10 June 2026.F

Respondents do not have to respond to all the questions in this document. HMRC welcomes full responses or partial responses focused on the individual aspects that are most relevant to the respondent.

If you have any queries about the consultation, please send them by email to closecompanyconsultation@hmrc.gov.uk.

Additional ways to be involved

There may be an opportunity to contribute through round tables and other events through which stakeholders can contribute to future policy development. If you would like to be involved in these events, please email closecompanyconsultation@hmrc.gov.uk.

After the consultation

The government will analyse the consultation responses and publish a summary of responses after the consultation closes.

Getting to this stage

This is a new consultation. It was announced at Budget 2025.

Previous engagement

This is a new engagement with stakeholders on this subject.

Question 2

1. Introduction

Accepted Answer

Background

Small, self-run and family-owned businesses play a vital role in the UK economy. The government recognises that the majority of such businesses seek to operate responsibly and comply with their tax obligations.

However, the small business tax gap is 60% of the overall tax gap, and the small business Corporation Tax (CT) gap makes up a significant proportion of this. This tax gap has been increasing since the 2011 to 2012 tax year and stands at £14.7 billion in absolute terms, or 40.1% of the small business theoretical CT liability, for the 2023 to 2024 tax year. This indicates that more needs to be done to make sure that everyone is paying the right amount at the right time. Closing the tax gap is one of the government’s priorities for HMRC. Ensuring that all companies pay the tax they owe will protect public finances and allow businesses to operate on an even footing.

The predominant risks contributing to the tax gap in the small company population are:

under-reported income and over-claimed expenses
error and evasion in transactions that occur between a company and its owners

The proposals in this consultation are more directly focused on the second of those risks, but HMRC expects the information to be applied in finding and addressing, and in time preventing, the first.

Close companies are those controlled by 5 or fewer participators, or by any number of participators who are directors. A participator is a person with a share or interest in the capital or income of a company; usually they are the shareholders. Nearly all small companies are close. The risks we see in the tax gap are particularly acute with close companies, where there may not always be a clear distinction in practice between the company and its participators, and the merger of interests and finances can both encourage error and facilitate evasion.

On one hand, some companies and their participators do not fully understand the significance of operating through a company and the associated obligations. This can particularly be the case where the participators were formerly self-employed, or where careful records are not kept, and where there is a failure to distinguish between the company’s and the participator’s monies.

On the other hand, the level of control allows close companies to easily structure their affairs to minimise the tax charge on participators, ranging from benign planning to aggressive avoidance. This can happen with close companies in a way that is generally not possible for the self-employed, or for companies with a diverse participator base whose primary desire is to maximise the company’s commercial profit.

Small, self-run and family owned companies want to get their tax right. They should already be keeping records of the money that passes between the company and its owners. Creating a more structured framework around those records and that relationship will help them with their tax obligation, and with good habits around tracking the company’s money.

Consultation

From this consultation, HMRC seeks to:

gauge taxpayers’ understanding of current legislative requirements and establish what support is available to them in this regard
gain a deeper understanding about the information currently recorded by close companies in relation to participators
obtain views on collecting data and reporting it to HMRC, and whether there are any areas of particular challenge for reporting

The government is therefore consulting on plans to require close companies to provide detailed information of transactions between the company and its participators, including:

payments, via cash, bank transfer or otherwise
sales of assets to the company
purchases of assets from the company
dividends or other distributions
any other transfer of value from the company to the participator

This information will enable HMRC to better deliver its core functions, supporting customers in complying with their tax obligations and helping to close the tax gap by ensuring that the right amount of tax is paid. However, any new requirements should not introduce disproportionate burdens on companies and should build on their existing record-keeping.

We welcome responses from businesses themselves, but also from the advisory profession and representative bodies, who will have a broader view across the population.

This work aligns with the Transformation Roadmap, published by HMRC in July 2025, which confirmed that the Making Tax Digital (MTD) model which applies to VAT and Income Tax Self Assessment will not be introduced for CT. HMRC is not looking to directly replace MTD for CT, but will work with stakeholders to develop what the future administration of CT should look like, and how to best accommodate the wide range of entities and situations within the CT framework.

The government expects to explore other ways in which to address the small business CT gap in the future.

Question 3

2. Current context

Accepted Answer

Close companies

A company and its participators are separate legal people. A participator is a person (such as an individual, company or trustee) with a share or interest in the capital or income of a company; usually they are the shareholders. Where money, income or value from a company ends up in the hands of the participators, there should usually be a tax charge. This is typically in the form of salary or as a dividend or other distribution, for which the individual will be liable to Income Tax.

Close companies are, broadly, those controlled by 5 or fewer participators, or by any number of participators who are directors. Close companies are often family or owner-managed businesses. While companies of any size can be close, the vast majority are small.

Question 1: Is the close company definition well-understood in the small company population? Are companies always aware whether they are close?

Where a participator takes a loan or extracts value from a close company otherwise than by way of a distribution or as employment income, it falls within the loans to participator regime.

This regime was introduced in 1965 and the rules are now found in Part 10 of the Corporation Tax Act 2010 (CTA10) and Part 4 of the Income Tax (Trading and Other Income) Act (ITTOIA) 2005. They were introduced specifically to counter tax avoidance by which a close company would make loans to its participators rather than paying them dividends or salary.

The regime charges tax on the company under sections 455 or 464A CTA10 at the dividend upper rate of Income Tax, on the value of:

any loans to participators,
any benefit conferred on participators which is not otherwise chargeable to Income Tax, and
any other participator indebtedness to the company,

which is outstanding more than 9 months after the end of the company accounting period in which the loan was made or the indebtedness arose.

When the participator repays their debt, the company can make a claim to HMRC for relief or repayment of the tax charge.

If the company releases or writes off the loan or indebtedness, then the participator is charged to Income Tax on the amount released or written off as if it were a dividend.

There have been some changes to the legislation over the years addressing the ways that companies and their participators have found to circumvent the rules. For example, substantial changes were made in 2013 to prevent known abuses of the legislation and to introduce a new anti-avoidance provision. In response to continued attempts to circumvent the rules, this anti-avoidance provision was further modernised and strengthened with effect from 30 October 2024.

The purpose of the legislation is to prevent tax avoidance and ensure that all taxpayers pay their fair share of tax in a proportionate manner, with regard to commercial realities. In particular, HMRC accepts that it is common for the owners of many small businesses to regularly extract monies that represent the company’s profits to meet their general expenditure. This is recorded as a loan and booked in the company’s ‘director’s loan account’ or ‘DLA’.

Question 2: Are the loans to participators rules well-understood in the small company population?

Question 3: Do small companies have a good understanding of relevant corporate law? For example, about when it is permissible to issue a dividend.

Current reporting requirements

Companies are required to complete a Company Tax Return for every accounting period. This consists of a CT600 form, any required supplementary pages, and a copy of the company’s accounts and tax computations.

Supplementary page CT600A is required when a close company needs to pay a tax charge in relation to a loan to a participator; for example, when the company has made a loan which has not been repaid in the accounting period or within 9 months of the end of the accounting period. There is also a separate form (L2P) which can be used to claim relief where a loan has been repaid, released, or written off.

Where a tax charge is due on an individual shareholder or participator, either because they have received a dividend or distribution, or because a loan has been written off or released, this must be declared in their Income Tax Return. Company directors should also complete SA102, the Employment page, and indicate whether the company is close. From the 2025 to 2026 tax return, there are new boxes for directors of close companies that ask for more details, such as the company’s name and registration number.

Question 4: Do small companies typically receive support from tax advisers or accountants with understanding their tax obligations and completing their tax return? If so, at what stage would the adviser be engaged, and what level of support is offered?

Question 5: Other than by engaging tax advisers, how else do companies find appropriate guidance or advice on these subjects?

Question 6: What challenges do tax advisers currently encounter in this space when handling company records and preparing returns? Are there examples available of ‘good’ or ‘bad’ client workflows?

Question 4

3. Policy proposals

Accepted Answer

HMRC’s investigations into the small company CT gap have highlighted that HMRC is not receiving the full picture in terms of how close companies interact with their participators. The small company CT gap is very large and growing, and in many cases it appears there has been some blurring of the boundaries between what is rightly the company’s money and what is the participator’s, enabling both mistakes and deliberate non-compliance.

The proposals are intended to focus both the close company and participators’ attention on their tax obligations, encouraging good internal record keeping and an understanding of the wider tax framework, to ensure that companies pay the right amount of tax. The information reported will also enable HMRC to undertake more targeted support and compliance activity in this area, and build up a baseline which in time could be used for more pre-emptive, preventative interventions.

Data

The government is proposing that close companies provide HMRC with details of transactions between the company and its participators, including cash withdrawals, loans, debts, dividends, other distributions and transfers of assets to and from the company. Currently, the only exception the government considers may be appropriate would be items already reported to HMRC under the RTI system for employment income, such as salary paid to a director. At a high level, required details will include the recipient, amount and date of each transaction. However, any new requirements must be proportionate and not impose undue burden on businesses.

Question 7: What data do close companies currently keep about their transactions with their participators? How do companies currently keep track of Director’s Loan Accounts?

Question 8: How often do companies collect or collate this data? For example: daily, weekly, monthly or on an as-and-when basis. If infrequently, what safeguards are in place to ensure that all transactions are captured in the records?

Question 9: How many separate transactions might occur annually in an average close company in relation to a single participator?

Question 10: What is the general size and frequency of these transactions?

Question 11: How many participators might an average close company be undertaking transactions with?

The current proposal is to require details in relation to all participators, including corporate participators, not just from individual participators. This may be complicated when the close company is part of a group and there are a significant number of intra-group transactions.

Question 12: Are there any categories or types of participators, or types of transactions themselves, where it may not be practical or beneficial to provide details to HMRC?

The government will also explore whether the benefits of these proposals could be enhanced by making associated changes to the personal tax reporting framework. Any such changes would build on the additional requirements that have applied to certain directors since April 2025 and seek to align the information being reported to help build a more holistic view of closely held corporate structures.

Question 13: How, and to what extent, are company and personal records currently aligned?

Provision of data

The method and frequency of the provision of the information is yet to be decided. The government does not want to impose any greater administrative burden than necessary, which may suggest that an annual reporting cycle tied to the existing Company Tax Return should be preferred. However, the government is keen to understand if stakeholders see any benefit in more regular or real-time reporting, especially if the underlying data would be available to this timescale.

Possible methods include an update to the CT600A or to the Company Tax Return more widely, or a more bespoke digital solution. We are interested in whether companies commonly use manual or digital recording and how easy it would be to provide the data to HMRC.

Question 14: How are these records currently kept?

Question 15: Do software products currently used by companies to prepare their accounts or tax return contain any functionality to help keep track of transactions such as shareholder loans, or possible charges under the loans to participators regime?

Question 16: What would be the preferred way to transfer the required information to HMRC?

Question 17: Do you expect this to cause any additional administrative burdens for your business? If so, how could they be minimised or removed?

To allow HMRC to cross-reference the data with that from the participator’s Income Tax Self Assessment return, HMRC will need the identifying details of those participators. For example: name, address, National Insurance number. Where the recipient is employed by the company, the company will already be aware of his or her National Insurance number.

Where there is no employment relationship, the government is considering in what situations it is appropriate to require a company to provide a National Insurance number, such as a minimum shareholding or being connected with a person holding such a stake in the company. Where a company is not aware of a recipient’s National Insurance number, additional identifying information may be required. The government is keen to explore how this obligation could operate in situations where other persons or entities are interposed between a company and its (ultimate) beneficial owners, or where transactions take place at the direction of a participator such that the indirect loan provisions or the anti-avoidance provision might apply.

Question 18: In what circumstances might it be difficult for companies to provide identifying details of participators?

Repayments, releases and write offs

Where a loan to a participator is repaid, released or written off, then the company can claim back any section 455 tax that has been paid. The proposed reporting requirements would capture details of any repayments made by a participator to the company.

The government is proposing to extend the requirement to also include instances where close companies release or write off loans to their participators. Providing the date and amounts of any releases or write offs will enable HMRC to be aware of any relief due to the company or any Income Tax charges due on the participator.

Question 19: Do you have a view on the relative administrative impact of this suggestion?

Penalties

It is expected that the normal CT penalty regime will apply to the requirement to provide this data. However, the government is exploring whether it would be appropriate to introduce specific penalties; for example, where transactions are deliberately omitted.

Question 20: Do you anticipate any issues with the application of the normal CT penalty regime to this requirement? Can you see any scenarios where a more bespoke penalty regime might be more appropriate?

About you

Question 21: Are you responding to this survey as:

a business
a representative body
an agent
an individual
other (please provide details)?

Question 5

4. Assessment of impacts

Accepted Answer

Summary of impacts

Year	2025 to 2026	2026 to 2027	2027 to 2028	2028 to 2029	2029 to 2030	2030 to 2031
Exchequer impact (£m)	No data	No data	No data	No data	No data	No data

Exchequer Impact Assessment

Any Exchequer impact will be estimated following the consultation, which would provide the final scope and design of the measure, and it will be subject to scrutiny by the Office for Budget Responsibility.

Impacts	Comment
Economic impact	Publication of this consultation is not expected to have any significant macroeconomic impact. Any economic impact will be estimated following the consultation, which would provide the final scope and design of the measure, and it will be subject to scrutiny by the Office for Budget Responsibility.
Impact on individuals, households and families	Publication of the consultation document is not expected to have any impact on individuals, households or families. The options presented in this consultation are expected at this stage to have no impact on individuals, as they would likely only affect businesses. Any impacts of subsequent policy measures will be fully examined and detailed in future advice.
Equalities impacts	It is not anticipated that there will be impacts on those in groups sharing protected characteristics from publishing the consultation document. Any impacts of subsequent policy measures will be fully examined and detailed in future advice. A full equality impact assessment is not recommended at this stage.
Impact on businesses and Civil Society Organisations	Publication of the consultation document is not expected to have any impact on businesses or civil society organisations. The proposals outlined in the consultation would impact close companies, though the nature of any impacts would depend on subsequent decisions. Any future impacts of subsequent policy measures will be fully examined and detailed.
Impact on HMRC or other public sector delivery organisations	Publication of the consultation document is not expected to have any impact on HMRC. Any future impacts of subsequent policy measures will be fully examined and detailed.
Other impacts	No other impacts have been identified.

Question 6

5. Summary of questions

Accepted Answer