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Posted: Mon 22nd Jun 2026
7 min read
Small business owners could soon face sweeping new obligations to report every financial transaction with their companies to HMRC, under government proposals designed to close a £14.7 billion tax gap.
The consultation, published in March 2026 and now closed, targets so-called "close companies" – a category that encompasses nearly all small, family-owned and owner-managed businesses in the UK. If implemented, the changes would require detailed reporting of cash withdrawals, loans, dividend payments, asset transfers and any other movement of value between a company and its owners.
The proposals centre on "close companies" – defined as businesses controlled by five or fewer shareholders (called "participators"), or by any number of shareholder-directors. This broad definition captures the vast majority of small businesses, including:
Family-run companies
Owner-managed businesses
Many private equity-backed firms
Most small to medium-sized enterprises
"The close company definition is actually much wider than many people realise," warns . "This initiative will impact most privately held companies, including those which are private equity-backed."
The key question many business owners should be asking: "Am I running a close company?"
The answer is almost certainly yes if you're a small business owner with a handful of shareholders or if you and fellow directors control the company.
Close companies would have to report every transaction between the company and its owners. The list covers cash withdrawals, loans, debts, dividends and other distributions, and any transfer of assets to or from the company.
For each one, you would report the recipient, the amount and the date. You would also give identifying details for the person involved, including their name, address and National Insurance number.
Salary already reported through PAYE would be left out. Loan repayments, releases and write-offs would be captured.
The case rests on the tax gap. HMRC's own figures show small businesses account for 60% of the overall tax gap. The small company corporation tax gap alone stood at £14.7 billion for 2023 to 2024, and it has been rising since 2011 to 2012.
It argues that in many small firms, the line between company money and personal money gets blurred. That causes both honest mistakes and deliberate evasion, and HMRC says it cannot currently see enough to tell them apart.
Right now, the only routine reporting on these transactions is the director's loan charge, which falls due on a loan left unpaid more than nine months after your year end. This goes much wider.
The frequency is not settled. The government says an annual cycle tied to your existing company tax return is the most likely option, but it is asking whether more regular or even real-time reporting would work. That single question matters more than almost anything else in the document.
One reassurance sits in the same paper. HMRC has confirmed it will not extend Making Tax Digital to corporation tax, so this is not quarterly filing by the back door, at least not yet.
The accountancy bodies have pushed back hard. The ICAEW warned the plan would place a disproportionate administrative burden on compliant businesses while doing little, if anything, to close the tax gap.
It argued that the gap is better closed by a credible risk of HMRC enquiry and targeted work by trained staff, aimed at high-risk behaviour rather than bulk data collection. It also questioned whether HMRC has the capacity to use all the data it would gather.
The Association of Taxation Technicians made a similar point, warning that the requirements could land heavily on the smallest companies and the agents who support them.
The sting is who carries the cost. The sole director with no finance team and a tangle of small transfers is exactly the person who would spend the most time on this, and the least likely to be the problem HMRC is chasing.
Daniel Woolf, head of policy at Enterprise Nation, said:
"Small firms using digital banking and accounting software are presumably already doing this and have been for some time.
“Systems such as Sage already automatically track and categorise transactions, maintain director's loan accounts, and flag potential issues with loans to participators. For businesses already using such software, the data HMRC wants already exists in a structured, digital format.
“While we support the goal. A smaller tax gap is in every honest founder's interest, and some of that gap is genuine confusion, not fraud.
"The question isn't whether businesses can provide this information – most already generate it as a matter of course. The question is whether the administrative burden of formal reporting justifies the policy goal, and whether it will catch those genuinely evading tax or simply ensnare compliant businesses in more red tape.”
Keep reporting annual and tied to the existing company tax return. Quarterly or real-time would be a serious new burden on the smallest firms.
Limit the data to genuine transfers of value, not every routine movement, as the ICAEW has suggested.
Target enforcement at high-risk behaviour through trained HMRC staff, rather than collecting data on everyone to catch a few.
Invest in plain guidance for owners who get this wrong by mistake, give a long lead-in, and build on records firms already keep.
The consultation has closed, so this is about getting ready, not responding. A few sensible steps put small firms in a stronger position:
Keep director's loan account current, not reconstructed at year end.
Record the date, amount and purpose every time money moves between personal accounts and business accounts.
Keep personal and business spending separate
Nothing here is law yet. The government will publish a summary of responses, and if it proceeds, draft legislation will follow.
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