Are close companies about to have more reporting requirements?
As the steady expansion of reporting obligations continues, it seems that the time has come for close companies to face greater scrutiny.
There is currently an ongoing public consultation as to how to implement new reporting requirements.
With the change looming on the horizon, it is worth understanding how it may impact your administrative responsibilities.
What is changing 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.
HMRC want to get a better sense of how these transactions look to ensure that they are not subject to error or fraud.
As such, it may soon 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:
- Cash withdrawals
- Loans
- Debts
- Dividends
- Other distributions and transfers of assets to and from the company
Fortunately, the current provisions have made it clear that any items that are currently subject to HMRC reporting requirements will fall out of the scope of the new provisions.
This means that there will not be a doubling of administrative tasks, with each transaction only needing to be reported once.
Why are the rules for close companies changing?
It is well established that small businesses struggle to fulfil their tax obligations either through a lack of knowledge of the system or due to other instances of error and fraud.
This has resulted in HMRC taking particular interest in the activities of these businesses that may have historically not paid the full amount of tax they were supposed to.
Given how small close companies are in terms of the way they are run, it is believed that the transactions with participators could be a particular vulnerability.
While they are not inherently problematic, it makes sense that HMRC would like greater oversight on these transactions to ensure they are conducted legitimately.
Currently, the public consultation as to how these new reporting requirements may come to pass.
The current proposal is to align them with the existing company tax return, meaning that there should not be an additional deadline to manage in the year.
Similarly, there is a belief that some penalty system will be assigned to it, but whether that is something targeted or more in alignment with existing penalty structures is also not currently known.
What is known is that changes will be coming in the near future and close companies should be preparing for them now.
Our team can help you understand how to handle participator transactions in a legitimate way and can get you ready for the new reporting obligations.
Speak to our team to ensure that your close company is compliant.
