Have you heard what HMRC wants to do now?
A recent, quietly announced open call from HMRC is trying to add more work to businesses who are already struggling with workload. Here's everything you need to know.
This edition of The Tax Cut is a deep-dive for anyone who receives income from a UK-based limited company.
We’ve learned about a new call from HMRC that affects Limited Company Directors, and we wanted to break it down for you.
In our opinion, this move presents a risk to the hard work of the self-employed and small business community. You need to understand what HMRC are proposing, why they are saying it, and how it could affect your small business.
Jargon buster
Before we get going, here’s jargon buster:
Close company: a private business with between one and five directors (people who have financial and legal responsibility for a company)
Participatator: in essence, a shareholder To make life easier, we’re going to use “shareholder” throughout this piece.
Part 10 of the Corporation Tax 2010 and Part 4 of the Income Tax (Trading and Other Income) Act (ITTOIA) 2005: Pieces of UK tax legislation
Here’s what you need to know
HMRC estimates a £14.7 billion gap in unpaid taxes from self-employed people. They claim that These apparent discrepancies around Corporation Tax (CT) are creating a 60% difference in taxes reported by small businesses and taxes HMRC estimates they should receive. According to their numbers, the gap has been increasing since the 11/12 tax year. To tackle this gap, HMRC wants small, limited businesses to increase their reporting on expenses, income, and loans.
We believe that this is another move from HMRC that shows they neither understand nor value the contributions of the small business community.
They claim that directors of Limited Companies are “blurring of the boundaries between what is rightly the company’s money and what is the shareholder’s, enabling both mistakes and deliberate non-compliance.”
The open call is asking affected people to respond.
Who does it affect?
The open call affects Directors of “close companies”.
Close companies are usually Private Equity or family businesses that are controlled by between 1 and 5 people. These people are Company Directors and/or shareholders, and they mostly share interest in the company’s capital or income. They’re financially and legally responsible for the company.
HMRC says that this is where the problem lies: close companies might not have a clear distinction in practice between the company and its shareholders. This can, they say, lead to companies over-reporting expenses and under-reporting income.
Where is this coming from?
These changes are nominally part of HMRC’s Transformation Roadmap, and it’s connected to Part 10 of the Corporation Tax 2010 and Part 4 of the Income Tax (Trading and Other Income) Act (ITTOIA) 2005.
The ‘loan to participator’ rules in Part 10 were created to combat tax avoidance strategies. Before this, some companies would avoid elements of their tax liabilities by making loans to shareholders instead of paying dividends or salaries.
Today close companies are obligated to report these loans, but HMRC believes that the current reporting framework doesn’t provide a complete picture of the financial flows between close companies and their shareholders.
They say this gap allows for errors and, in some cases, avoidance.
What would it mean in practice?
If this proposal sails through, HMRC will be making close businesses submit even more financial reports. They believe that additional submissions will limit tax evasion, because it should, in theory, be easier for HMRC to understand when companies are over-reporting expenses and under-reporting income.
What information will HMRC want from you?
HMRC want more information on your:
Expenses
Income
Every shareholder’s personal details
Expenses and income
The open call doesn’t provide much detail about what information they’ll want from close companies, just that they believe they’re over-reporting expenses.
In terms of income, HMRC hopes to get more detailed information of:
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 shareholder
They say that gathering this information shouldn’t add an extra burden to business owners. But, given what they say next, this claim is hard to accept.
Personal data
HMRC wants to cross-reference a shareholder’s Income Tax Self Assessment return. To make that possible, they’ll need each shareholder’s name, address, and National Insurance number.
When a shareholder isn’t employed by a company, the government is considering when it’s appropriate to require a company to provide the person’s National Insurance number.
Clearly, they want a simple tactic for cross-referencing someone’s portfolio of interests.
For example, if you’re married to someone who has shares in ACME Fake Company, but you hold none yourself, HMRC would potentially want your name, address and NI number for cross referencing.
Legal avoidance tactics
The government wants to explore how this obligation could operate in situations where people or other entities are used as tactics to avoid tax. Today, companies can use specific avoidance strategies. This is legal. However, HMRC wants to monitor these more closely.
A real example: What this could mean for your business
Say you’re a Limited Company with two directors. This year, you’re set to bring in £100K revenue. Your numbers could look like this:
Director salaries
Both directors draw a salary of £12.5K
These are below the tax and NI threshold
That’s a total of £25K, leaving £75K
Expenses
The two directors claim a total of £25K year expenses
That leaves £50K
Taxable income
You’d pay 19% Corporation tax, which is £9,500
This leaves £40,500 available to draw as a dividend
The totals wouldn’t change radically.
However you’ll have to make an additional filing, showing where salaries will be declared separately. This in addition to the dividend draw-downs.
At the very least, you’ll be paying for additional accountancy services, and the invisible admin time of getting records ready for yourself, any co-directors, and their spouses.
What’s the cross-border angle?
As cross-border accountants, we’re already experienced in this level of reporting and we can tell you: adding reporting requirements to small businesses isn’t the way to address tax shortfalls.
Take the example of US citizens who are UK residents, and who own a UK limited company. They have to submit a similar report to the IRS, via Form 5471.
Completing this form is a significant burden: it starts at being 4 pages, it can get to 6 or 7 pages long. But it is so complex that the IRS has written a 58-page guidance booklet to ‘explain’ how to complete it. There are forms, and sub-forms. As with any piece of administration, it sets off a chain of other admin tasks, and completing it often requires the expert help of an accountant. This is, of course, a task that many people pay a Chartered Personal Accountant or an Enrolled Agent to complete. This is more time and more money a business must spent.
Whether this level of reporting makes a difference is hard to quantify. In the US, where every person must file a complex tax return, cuts to staff are being replaced by forms.
Speaking to an IRS agent gets harder every year. And the same is true with HMRC: they are taking longer to reply to tax payers, more errors are being reported, and stress is increasing.
The real solution to accurate taxes isn’t adding more admin and more forms. The real solution is hiring knowledgeable staff who understand taxes and business.
Why does it matter?
This open call is hitting a struggling economy: today’s job market is characterised by recent grads pursuing masters degrees due to high levels of youth employment - because grad schemes and entry-level office positions are being slashed by a third due to companies choosing AI over talent. The BBC reports that London’s youth unemployment rate has risen to 24.6%, with 135,000 of 16 to 24-year-olds out of work between November and January this year, the highest in the wealthy nations. Fortune have reported that trade roles such as HVAC engineers are increasing by 67%, and construction roles grew by 30% since late 2022.
Small businesses need help, not more un-paid work: MTD ITSA is already adding around £200 in software subscription fees. Accountancy fees will change around practices, but it’s fair to assume that adding four additional tax returns a year will see an individual’s accountancy fees at least double, which could be anything from a simple £300 one-off fee for a Self-Assessment, to a couple of thousand pounds for book-keeping, filing, and VAT returns. 16% of freelancers are thinking about leaving self-employment due to MTD ITSA, and the self-employed workforce has seen a 12.7% drop since 2020.
Small limited companies received no help during covid, they’ve recently faced a 2% hike in corporation taxes and taxes on savings income, increased reporting with companies house. Changes to business rates in retail, hospitality, and leisure has seen business rates relief drop from 75% to 40%. Add on to this the increasing costs in energy, and minimum wage: many close businesses are already at breaking point.
We’ve worked with small and local family businesses for decades. We do not see evasion. We see people working hard to earn a living and grow businesses that contribute to our society and our communities.
Adding more reporting to small businesses isn’t just another job on the to-do list: for many small businesses, it could be the final straw.
What should I do next?
We suggest five actions:
Continue working with reliable accountants
Keep excellent records of every transaction
Review your financial policies and procedures, and make sure they’re fit for purpose
Update your data collection on all shareholders
Make your view on data and reporting known to HMRC
We know that Limited Company owners are intelligent, curious, and committed to building profitable businesses.
HMRC says they want to hear from us? We say: let’s do it.
How can I make my views known?
The final date for submission is 10th June 2026.
It is a long form, so you might want to write your responses first.
Want to know more?
We’re considering holding a webinar to help people understand the implications of this open call. The language of the form isn’t accessible, and we want shareholders and company directors to have their voices heard.
If you’re interested in hearing about our webinar, subscribe to our newsletter, and we’ll send out dates for booking sessions.