On 5th April 2026 and for all future tax years, the rules governing the personal tax returns of company directors changed. They now have to include additional information when they complete their returns.
On the surface, a cursory look at the new requirements, would appear to show that the additional information requested is only a modest change. But if you dig below the surface, you’ll find that in practice, the changes raise a number of practical questions, in particular for directors of a close company.
What exactly is a close company?
A close company is a private limited company, i,e, not listed on the stock market, that is controlled by five or fewer “participators”, usually shareholders or controlled entirely by its directors. It is a tax classification meant to identify closely-held businesses, that are either owner-managed businesses, family businesses or small private companies, all of which are subject to specific HMRC tax rules.
Another example of this is a company that is in the process of being wound up and has 5 or fewer participators (or director-participators) who are due to receive more than half the company’s assets. Most UK family businesses fall into the category of being a close company.
What additional information is required?
Directors are now required to provide additional information in their tax returns. This includes confirming whether they were a director during the tax year (box 6) and, if so, whether the company is a close company (box 7).
This is reported through the SA102 (employment pages). Historically, the form included boxes for this information, but completing them was not mandatory. Where an individual is a director of more than one company, a separate SA102 must be completed for each directorship. However, when the company is a close company, the reporting goes further and directors will need to provide:
- The company’s name (box 7.1);
- The company’s registration number (box 7.2);
- The dividend received from that close company (box 7.3), (even if the amount is zero)
- The total percentage of the share capital held in the company (box 7.4), even if it’s zero.
Whilst these additional requirements are new, it is worth noting that these changes do not mean that all directors are now required to file a tax return. HMRC will often deem a director’s tax affairs to be simple and have informed many of this group that a self-assessment tax return is no longer required.
Whether or not a return is required depends on the individual’s circumstances, which remains unchanged. The new requirements simply mean that where a return is already required, whether under the normal self-assessment rules or Making Tax Digital for Income Tax, the additional information must be provided.
Shareholdings
Of all the new requirements, the need to report a percentage shareholding is likely to generate the most confusion. HMRC’s published advice states that the percentage should be calculated by reference to the nominal value of shares owned.
This is of course relatively straightforward where there is only a single class of shares, which are usually Ordinary shares and this makes the calculation very easy. So, if a director holds half of the issued shares, then their shareholding is 50%, simple!
However, many companies, particularly owner-managed businesses, have more complicated share structures. There can be several different classes of shares, often with different nominal values. In these cases, the calculation must take into account the total nominal value across all shares, rather than simply the number of shares owned.
This can sometimes produce rather odd results, which are not immediately obvious; for example, a shareholder with a relatively small number of higher nominal-value shares, can hold a larger proportion of the company than someone with a greater number of lower nominal-value shares.
It is also worth noting that the relevant legislation refers to share capital “held”. Clarification has been requested from HMRC to confirm that this should be interpreted as the percentage owned.
Share capital
Another point that may catch some off guard is the type of shares that must be included in the calculation. The legislation merely refers to share capital, rather than ordinary share capital. This is an important distinction as the two are not the same.
In other areas of tax, “ordinary share capital” excludes certain shares, such as those carrying only a fixed dividend with no further rights to profits. Under the new rules however, all issued share capital should be taken into account and must be included in the calculation.
Also, all of the boxes must be completed even where the relevant figure is zero. If a director of a close company doesn’t own any shares; and/or didn’t receive any dividends during the year they are still required to enter zero in the relevant boxes.
Changes during the tax year
Shareholdings are not always static, as directors may acquire or dispose of shares during the course of a tax year, which raises the question of what percentage should be reported. HMRC’s new rules state that the percentage should be the highest percentage “owned” at any point during the tax year.
This simplifies the reporting requirement but may produce a figure that does not reflect the position at the end of the year. For example, if the director’s percentage shareholding decreases from 60% to 50% during the tax year, the director should report 60%, being the highest percentage owned.
Accountant’s view
These changes strike me as not being properly thought through and clearly seem to be rushed. An example of which are the penalties to be imposed for not filling in a box, which will be £60. But it isn’t clear how HMRC will apply this; will it be per tax return; per directorship; or per missing item of information. No doubt further clarification will eventually be issued, but I don’t have a clue when!
