Company directors and shareholders face new mandatory reporting requirements for declaring dividends from profits for owner-managed and family-run ‘close’ companies.
Failure to comply will incur a £60 fine for each failure to disclose in the tax return.
Close companies are usually privately-owned limited and controlled by five or fewer participants, including shareholder directors. The reporting for the compliance ruling by HMRC starts in the next financial year 2025-26.
In their 2025-26 self-assessment returns, and onwards, shareholders must report the following details for each company in which they hold shares:
- Name and company registration number
- Amount of dividend income received
- Percentage of share capital held
Nicola Campbell, head of accounting and business advisory services in the Glasgow office of Azets, said: “Enhanced dividend reporting for privately-owned companies will give HMRC better visibility over dividend income and help identify unpaid or underpaid tax more effectively.
“Company directors must ensure accuracy with documenting dividends, which are outside of PAYE, as HMRC may make further enquiries.
“To ensure compliance we recommend that all dividends paid are properly documented, including board minutes voting the dividends and confirmation that there are adequate distributable reserves, followed by the issue of dividend vouchers.
“Directors should keep accurate records of board decisions as meeting minutes are crucial evidence of compliance with their duties. It might also be wise to review the shareholding structure early, to avoid last-minute complications when completing the tax return.
“It is essential to maintain accurate and up-to-date shareholder records and dividend histories. Failure to comply does not just risk a fine or fines, there is also the possibility of an investigation by HMRC which could be time consuming, costly and risk reputational damage.
“Any directors or shareholders concerned about the new rules are encouraged to seek professional advice.”
The current basic dividend rate above the allowance is 8.75%, with the higher rate at 33.75% and the additional rate at 39.35%.
Dividends are not business costs and are therefore deducted from the balance sheet, not the ‘dashboard’ profit & loss sheet.
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