What the New Tax Rules Mean for Directors in 2026
HMRC is tightening the rules for directors. From the 2025/26 tax year onwards, you’ll face expanded reporting obligations when completing your returns. The changes represent a fundamental transformation in how HMRC monitors owner-managed businesses.
It means director tax returns will now require detailed disclosures about your company directorships, dividend income and shareholding percentages. It’s not just hot air either. Failure to comply will cost you £60 per missing detail.
To make things easier, this article explains what you need to report and how to prepare.
The new mandatory disclosures for close company directors
The main thing to note is that your SA102 Employment pages have undergone substantial changes.
Questions about director status and close company classification were optional before. These have become mandatory fields on director tax returns from the 2025/26 tax year, with additional disclosure requirements that apply if your company meets the close company definition.
Let’s break it down.
Director status confirmation
A close company is defined as one controlled by five or fewer participators, or by any number of participators who are also directors. Most family-owned and privately managed businesses fall into this category.
The term ‘participator’ extends beyond ordinary shareholders to include anyone with a share or interest in the company’s capital or income. It also includes persons entitled to distributions or benefits from the company.
Your director status isn’t limited to those registered at Companies House. You’re captured by these rules if you’re a shadow director or control more than 20% of the company’s ordinary share capital. Crucially, this calculation takes into account shares owned by your associates.
Company details required
You must provide the close company’s full name in box 7.1 and the Companies House registration number in box 7.2 for each company where you held a directorship at any point during the tax year.
If you hold multiple directorships, you can expect much more paperwork. Don’t shoot the messenger! Each directorship requires a separate SA102 page.
Dividend income breakdown
Box 7.3 requires the total dividend income you received from each close company during the tax year.
This figure must match the dividend amount reported on box 4 of page TR3 on your main SA100 return. But now, dividends from close companies must be separated from your other UK dividend income.
It’s worth noting that you still need to enter zero in this box even if you received no dividends from the company.
Shareholding percentage
Box 7.4 captures your total percentage of share capital held in the company. Here, you’ll need to report the highest percentage you held at any point if your shareholding percentage changed during the tax year.
This remains straightforward for most small companies with a single share class and stable ownership. That said, alphabet shares or mid-year shareholding changes require careful calculation to determine your peak holding.
Why HMRC is introducing these changes now
Closing the information gap
The tax gap stands at over £45 billion. Interestingly, small businesses represent 60% of this shortfall.
HMRC has identified two predominant risks that contribute to this gap:
- Under-reported income
- Over-claimed expenses
Plus, error and evasion in transactions between companies and their owners.
HMRC previously ran targeted campaigns directed at directors, who they suspected had not declared dividends based on company accounts reviews. The new mandatory fields on director tax returns create a straightforward cross-checking mechanism.
Close companies provide detailed information that HMRC can match against what directors report on their personal returns. This dual reporting approach makes discrepancies visible immediately.
Making Tax Digital alignment
These changes also fit with HMRC’s Transformation Roadmap published in July 2025, which confirmed that the Making Tax Digital model for VAT and Income Tax Self Assessment will not be introduced for Corporation Tax.
HMRC is developing what the future administration of CT should look like and accommodating the wide range of entities within the CT framework. The government expects to explore additional ways to address the small business CT gap in the future.
Targeting owner-managed businesses
HMRC’s focus on small companies stems from what they describe as a ‘blurring of the lines’ between a company and its shareholder.
The definition of close company extends far beyond small businesses and affects most privately held companies, including those with private equity backing. HMRC believes increased reporting will create better understanding of tax obligations for owner-managed businesses where corporate governance may be less formal.
But for companies already fully compliant with tax rules around participator transactions, these proposals simply add another compliance obligation without changing any tax treatment.
Get ahead of the changes
These changes represent a fundamental shift in compliance obligations for directors. The 2025/26 tax year will require much more detailed record-keeping, especially when you have multiple directorships or complex shareholding structures.
You should organise your dividend documentation now and track shareholding percentages throughout the year. Make sure your Companies House identity verification is complete.
Remember, early preparation will help you avoid the £60-per-item penalties and position you well for the expanded transaction reporting that appears inevitable in the coming years.
If you’d like more information or help in ensuring you stay on the right side of HMRC, please get in touch. Whittock Consulting provides a full range of accounting services for businesses and individuals. We’d love to help.
