Taxing time for company directors over dividends reporting requirement
- gracebell7
- 8 hours ago
- 2 min read
Company directors and shareholders in the North East face new mandatory reporting requirements for the first time when it comes to declaring dividends from profits for owner-managed and family-run ‘close’ companies.
Close companies are usually privately owned limited companies controlled by five or fewer participants, including shareholder directors.
The reporting for the compliance ruling by HMRC starts in the financial year 2025-26.
In their 25/26 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
Jodie Barwick-Bell is a private client tax partner and family office adviser for the North East at Azets, the UK top 10 accountancy and business advisory firm with offices in Newcastle, Durham and Teesside.
She said: “These changes are part of the government’s broader strategy to reduce the tax gap. Enhanced dividend reporting for privately owned companies will give HMRC better visibility over dividend income, helping them identify unpaid or underpaid tax more effectively.
“These new mandatory reporting requirements mean that company directors should ensure accuracy with documenting dividends, which are outside of PAYE, as HMRC may want to take a closer look.
“Particular care will be needed for shareholders in private companies with varying share classes with differing rights."
Jodie added: “To ensure compliance with the new requirements, we recommend that all dividends paid are properly documented in a contemporaneous manner, including board minutes voting the dividends and confirming 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 – some businesses will be lagging somewhat in this regard and may well require support from accountants to avoid falling foul of the new reporting landscape.”
Dividends are paid to shareholders if there are sufficient profits to warrant pay-outs – the first £500 in 2025-26 is tax-free, reduced from the tax-free allowance of £1,000 in 2023-24 and £2,000 in 2022-23.
The dividend allowance of £500 remains unchanged following the Autumn Budget but the basic dividend tax rate and higher dividend rate rises by 2% from next April, to 10.75% and 35.75% respectively, whilst the additional dividend rate remains unchanged at 39.35%.
Dividends are not business costs and are therefore deducted from the balance sheet [savings and liabilities], not the ‘dashboard’ profit & loss sheet which summarises a company’s in-and-out costs.
