HMRC has launched a consultation proposing new reporting requirements for directors’ loan accounts and transactions between close companies and their participators.
The proposals aim to address the £14.7 billion small business tax gap, which reached a record level in 2024 and accounts for around 40% of small business corporation tax liabilities.
The changes would affect owner-managed businesses and small companies, although HMRC has not confirmed how many entities may be impacted or when the rules could take effect. The consultation forms part of a broader Government approach to improving tax compliance.
Under the proposals, close companies would be required to report detailed information on transactions with participants. This includes payments, asset transfers, dividends and other distributions, as well as any transfer of value between the company and its participants.
Director’s loan accounts are a key focus. Currently, companies can reclaim section 455 tax under the Corporation Tax Act 2010 when loans are repaid, released or written off. The proposed rules would require companies to report repayments, and may extend to reporting loan releases and write-offs, along with additional detail on dividends and gains.
HMRC has indicated a preference for annual reporting aligned with company tax return deadlines, although the consultation also considers more frequent reporting. Certain items already reported through real-time information systems, such as salaries, may be excluded.
The consultation also seeks views on reporting formats, timeframes, and the level of understanding of directors’ loan account rules among directors of small companies.
Responses are invited until 10 June at 9:30 am.
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