It is expected that close companies may be subject to new reporting requirements in the near future.
The details of how this will manifest are currently being decided by a public consultation, but the plans are known and it is worth understanding how they might change the administrative obligations for close companies.
Close companies, those companies controlled by their directors or by five or fewer participators, may soon need to disclose details of transactions with participators in order to stay compliant with changing legislation.
In order to get a better handle on the rates of error and fraud exhibited by small businesses, HMRC are looking to enhance reporting requirements.
This means that soon it will likely be necessary to provide details concerning the amount transacted, the date and the details of the recipient, including their name, address and national insurance number.
This will impact a range of transactions, including:
Instinctively, you may be concerned that some information is already disclosed to HMRC and you will be relieved to know that if that is the case, then there are no plans to require it to be reported twice.
Small businesses are being viewed more critically by HMRC, as data patterns indicate a significant gap in the amount of tax paid compared to what is owed.
As this can result in quite a deficit over time, HMRC are hoping to close the tax gap.
Transactions to participators have been identified as something that is prone to error and fraud and is in need of better oversight.
The measures are not designed to dissuade these kinds of transactions, but should make close companies take extra care to ensure they are recorded effectively and that taxes are calculated accordingly.
The specifics of the new requirements are still subject to the ongoing consultation, so it is not yet clear how the records will need to be managed.
Currently, the proposal indicates that the records will be tied to the regular company tax return rather than requiring a separate deadline to keep track of.
Likewise, there will inevitably be penalties assigned to the failure to comply with these new regulations.
It is not known whether the penalty system will be unique or if it will be an extension of an existing structure.
While the consultation is ongoing, it seems apparent that change is coming relatively soon for close companies.
Our team can help you to understand your upcoming obligations while also ensuring that your participators transactions are legitimate and handled effectively.
Speak to our team to ensure you are ready for the new close company compliance measures.
