Close companies may soon be subject to new administrative changes as the Government seeks to shed light on previously difficult-to-distinguish transactions.
Close companies – a company that is controlled by five or fewer participators or by their directors if those directors are participators – could soon need to disclose the details of transactions with participators to stay compliant.
Participators will generally be shareholders or directors, but a full definition of who qualifies can be found in CTM60107.
If a participator has voting power, share capital of the company and rights to capital when winding up, then they are considered to control the business.
To understand how reporting requirements may be affected, it is necessary to understand which transactions may be impacted.
Which reporting requirements might change?
The proposed changes will cover a range of transactions, including:
If you are concerned that some of these transactions may already be reported to HMRC, then rest assured that they will be excluded from reporting requirements to avoid a doubling of admin.
In order to stay compliant, close companies will need to provide details concerning the amount transacted, the date of the transaction and the details of the recipient, including their name, address and national insurance number.
What is the reason for these changes being introduced?
As the changes are currently under public consultation, they might not be implemented at all.
However, some element of the changes are likely to manifest due to HMRC believing that transactions between close companies and their participators are areas exposed to high levels of error and fraud that may make them vulnerable to tax loss.
The tax gap, the difference between the amount of tax owed and the amount collected, is seen to be a particular problem for small businesses.
As such, small businesses continue to be the focus of tax reform and additional scrutiny.
The exact details of how and when the reports will need to be made are unclear, as the proposal is still under consultation.
It is believed that an annual reporting cycle will be established that will be tied to the existing company tax return.
This will prevent a new requirement from being imposed and should make things easier to track.
If you have any concerns about these new requirements and how to stay compliant, our team are happy to assist.
Take the stress out of company tax compliance by speaking to our team.
