Via two entry points, HMRC is seeking richer data to risk-assess and enquire into directors’ personal and company tax affairs. Have your say before June 10th.
Before I can answer whether Reporting Company Payments to Participators is a concerning consultation for contractors, one ContractorUK Forum post indicates that a few definitions might first be in order.
So, let’s start with what HMRC means by a “Participator” and, in response to forum user “sadkingbilly,” what’s also meant by a “Close Company”.
When does Reporting Company Payments to Participators close?
Plus, I’ll cover why these terms are important, and not just because the HMRC consultation with close companies and participators at its heart — Reporting Company Payments to Participators — closes shortly, on June 10th 2026, writes chartered accountant Matt Fryer, managing director of Brookson, a People 2.0 company.
Who does HMRC mean by a Participator?
A “participator” is a person who is a shareholder of a company (who is entitled to dividends), or a person who has loaned amounts to the company.
Essentially, then, a participant is any person who has an interest in the capital or income of the company.
What does HMRC mean by a Close Company?
A “close company” is a company which has five or fewer participants.
Therefore, the key takeaway is that these companies are small and tend to be sole director companies, husband-wife companies, or family businesses.
What’s the origin of Reporting Company Payments to Participators?
On March 19th 2026, HMRC announced that it’s looking at companies that meet the above criteria.
And ominously, it’s all to do with the perceived small business ‘tax gap’ being a significant amount of the overall ‘tax gap’ — approximately 60% according to the Revenue’s findings.
How much is the UK tax gap in absolute terms?
Referring to the £14.6 billion UK ‘tax gap,’ HMRC says in the consultation (‘Reporting Company…’):
“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.”
What two key risks does HMRC see with close companies?
HMRC has assessed that the key risks associated with close companies are:
- Under-reported income and over-claimed expenses.
- Error and evasion in transactions that occur between a company and its owners.
What do directors of small companies need to be aware of?
There are two what we’d call ‘entry points’ that HMRC is looking at to start to close the ‘close company tax gap.’
- This March 2026 consultation, in which HMRC talks of “modernising the reporting framework.”
- There has been a quietly made HMRC update to disclosures required in the 2025/26 self- assessment return — it can be found at new subsections of Q7.
What are the key new questions on the 2025/2026 self- assessment return?
Let’s look closer at this HMRC update. From 2025/26 onwards, an individual who is a director of a close company must declare the following four strands of information on their self-assessment return.
It’s at Q7 of the tax return’s ‘Employment Page’ section.
- The name and registered number of the close company
- The value of the dividends received from the company in the year
- The value of dividends received from each closed company separately, even if the amount is zero
- Shareholding percentage disclosure.
What is the close company consultation also known as?
The other entry point, the March 19th consultation, is also known as “Reporting company payments to participators — modernising the reporting framework.”
In it, the government is principally 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.
Key details of the proposed reporting requirements consultation (continued)
And specifically, the following: 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.
It is important to recognise that, currently, these are only proposals.
The consultation is looking into the efficacy of the above.
Contractors can have their own individual say, by responding to the consultation, here, by June 10th.
Who is Reporting Company Payments to Participators aimed at?
There’s been some concern that this consultation on close companies is aimed primarily at tax experts, advisors, and accountants.
However, the HMRC consultation document under “Who should read this?” first mentions, “Individuals, company directors, business owners”.
That said, the majority of the 20-odd formal questions in “Reporting Company…” do appear to be addressed at us tax professionals.
Why are the HMRC consultation questions not seemingly aimed at contractors?
Like in the previous tax year, HMRC operates in 2026/27 on the basis that a taxpayer is aware of all associated tax rules.
But given the complexity of the UK tax system, this operational basis almost inevitably means that professional advice is required.
And that is likely why a lot of the consultation appears to be aimed at tax advisors.
What does HMRC ask in Reporting Company Payments to Participators?
For example, HMRC is asking the following questions (paraphrased here for brevity):
- Do directors understand when they are legally entitled to take their director's fee?
- Do they grasp dividend and/or a director's loan withdrawal?
- Do they understand the tax implications of these actions?
Should directors of close companies be concerned?
This consultation may, on the face of it, appear to be concerning for limited company contractors, as it seeks to provide HMRC with richer data with which to risk-assess and enquire into directors’ personal and company tax affairs.
One contractor is clearly of that view, deeming the proposals to be HMRC “overreach.”
However, if you are currently operating compliantly as a limited company director, you should not be overly concerned.
In addition, there are no legislative changes planned at the moment.
Nonetheless, with HMRC seriously looking at this area, now is a good time for affected limited company directors to assess the following three.
What three things should contractors review in light of this close companies consultation?
- Company structure
- Tax planning arrangements
- Documentary evidence as to the nature of their withdrawals at the time the withdrawal was/is made.
Let’s now turn to three central aspects relating to this trio, in terms of what best-practices for contractor limited company directors should look like in 2026/27 — when it comes to director salary, dividends, and loans.
- Director’s salary
The optimal tax planning arrangement for contractor limited company directors is generally to take a low director’s fee and the residual amount as dividends, thanks to still-favourable dividend rates.
The director’s salary should be reviewed and approved annually.
The director’s salary is recognised as earnings when credited in the company accounts, usually when the director’s salary is processed through payroll via RTI.
2, Dividends
When paying a dividend, a contractor limited company director needs to have satisfied themselves that the dividend payment is covered by:
- Retained profits from the last annual accounts, and that those profits have not been ‘lost’ in the intervening period of the current interim accounts
- Evidence that their retained profits have not been ‘lost,’ and including that evidence in their accounting records/management accounts
- The payment is supported by a dividend voucher.
In general, directors should ensure shareholders benefit from dividends based on their shareholdings, in line with the company’s Articles of Association and statutory records.
- Director’s loan account
Where ‘close company’ directors take funds out of the company which are not clearly designated as salary or dividends, then these are deemed to be a loan from the company.
Director loans are taxed under s455 CTA 2010 if not repaid within nine months of the end of your accounting period.
There is an obligation to report the annual loan movement in the company tax return and settle the correct amount of corporation tax.
Best-practice is to maintain a monthly summary of loan transactions that support the company's annual declarations.
The takeaway
Perhaps even more so than the Reporting Company Payments to Participators consultation, the updates to the 2025/26 self-assessment tax return clearly indicate that HMRC is serious in taking steps to reconcile what is reported in a close company’s financial statements with its individual director’s self -assessment, so it can address any gaps in unreported dividends and, ultimately, reduce the ‘tax gap.’
Potentially in the future, small companies, as a result of this consultation, may be required to provide real-time disclosure of company transactions, to ensure no income falls outside of tax.
In addition, by moving to collate information with regard to transfers of assets in and out of the company, HMRC is indeed seeking to expand its scope beyond company taxes and personal tax to also bring capital gains tax into the fold.
Contractor limited companies that follow best-practices are best placed to deal with any future disclosure requirements that might result from this consultation.
And those best-practices include clear, real-time identification of transactions, supported by documentary evidence, such as management accounts, dividend vouchers, and director loan account movement summaries.
An additional best-practice must be not to wade into the areas of close company director remuneration and transactions alone. Therefore, I would always advocate speaking to your accountant or financial adviser in respect of your company affairs. If you haven’t got either, you should look to engage a qualified tax professional who can assist you in ensuring that your limited company's documentary controls are robust.
Final thought
Related, one potentially positive takeaway of Reporting Company Payments to Participators is that many unrepresented contractors may now feel the need to seek professional advice from a contractor specialist accountant to help minimise the risk of future HMRC scrutiny. And who knows, this change in behavior alone could help HMRC minimise the close company ‘tax gap’ to a level that it can accept.
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