ATT responds to consultation on payments to participators in close companies
Following an announcement at the 2025 Budget, HMRC published a consultation on several proposals for reporting company payments to participators in close companies. A close company is normally one controlled by five or fewer participators or by any number of participators who are directors.
Proposals included in the consultation
Under the proposals, close companies would be required to provide HMRC with details of individual transactions between the company and its participators, with the exception of employment income reported under PAYE. HMRC indicated they would expect details of cash withdrawals, loans, debts, dividends, other distributions, and transfers of assets to and from the company, potentially in real time.
As well as individual transaction details, if implemented, the expectation is that HMRC would need to be notified of the recipient, amount and date of each transaction, regardless of whether the transaction is with individual or corporate shareholders. Details of the name, address and National Insurance number of individual shareholders may also be required.
In the weeks after the consultation was published, we received feedback from ATT members concerned about the impact this would have on their practice and their clients due to the level of detail to be reported, which for some close companies could be thousands of transactions per year.
The ATT response
In the ATT response, we noted our concerns about the increase in the costs of compliance for close companies of the proposals, which are likely to create a significant additional administrative burden for most companies, especially if the reporting needed to be made in real time.
We stated that those companies that are already compliant will see an increase their costs of compliance with zero benefit to them, but companies that are deliberately not compliant with the existing requirements for close companies are unlikely to comply with any additional reporting requirements fully and accurately. As such, the benefits the proposed additional reporting requirements may have in terms of reducing the tax gap should not be overstated.
We also felt that some companies may respond to increased costs by replacing their accountant/tax adviser with another (potentially less reputable) accountant/tax adviser or choosing to be unrepresented. We believe that both outcomes are likely to increase rather than reduce the level of errors made by small companies.
The proposal is made with the backdrop of additional disclosures in the SA102 pages of a director’s tax return from April 2025, which our members tell us have already proven burdensome and created additional costs for taxpayers, without creating sufficient justifiable benefit for HMRC in terms of supporting compliance activity. The SA102 obligations have been a source of great frustration for our members in practice, greatly increasing the level of disclosure even where there is no tax payable.
An alternative proposal
Instead of the need to disclose detailed information on individual transactions, we suggested that HMRC consider disclosure requirements similar to those previously required under accounting standards in respect of transactions with participators. This could include aggregate amounts for smaller transactions and specific disclosure of items above a certain amount. This would avoid the need to disclose potentially thousands of transactions to HMRC, which may be difficult to analyse.
We also drew attention to member feedback on the timeliness of Section 455 tax refunds when loans to participators are repaid or released. In some cases, companies wish to offset a Section 455 tax refund against the Corporation Tax liability due on the same date. We would like to see the inclusion of a box on Form CT600 and/or Form L2P to allow a company to indicate whether it would like the refund of Section 455 tax to be offset against its Corporation Tax liability for the year and avoid the need for unnecessary debt management procedures.