HMRC is increasing its focus on individuals who own or control limited companies to help close this tax gap. They are leading a new awareness campaign encouraging persons with significant control (PSCs) to check that their Self-Assessment tax returns accurately reflect their financial relationship with the business.
HMRC awareness campaign targeting persons with significant control
HMRC is writing to PSCs to explain how this status may impact what needs to be declared on their Self-Assessment tax return. The campaign intends to raise awareness of what is considered taxable income.
This follows the announcement in April 2026 that more detailed information would be required in tax returns for PSCs of ‘close’ companies. A ‘close’ company is one that is controlled by five or fewer participators, or any number of directors who are also shareholders.
You are considered a PSC if you either:
- Hold more than 25% of shares or voting rights within a company
- Have significant influence over a company
What do you need to do if you are a PSC?
HMRC has instructed PSCs to review their tax returns to ensure that the information is accurate and complete, considering where corrections may need addressing.
They have highlighted the following instances of taxable income for PSCs to declare:
- Loans from companies
- Company-paid personal expenses
- Use of company assets
- Transfers of assets
- Share transactions and gains
PSCs have been asked to submit their 2025/26 Self-Assessment and correct any previous tax returns by 31st January 2027.
If HMRC later detects any errors before they are voluntarily disclosed, they will be treated as prompted, thus incurring a higher penalty. It is therefore recommended that voluntary disclosures are made in respect of any errors on previous tax returns as soon as they are identified, helping to minimise any potential penalties.
Our specialist personal tax and private client teams are highly experienced in preparing and submitting voluntary disclosures. They can support taxpayers throughout the process, ensuring that disclosures are accurate and complete. They will seek to minimise any penalties and, depending on the circumstances, may be able to reduce them to nil.
Although this is not a formal compliance check, it indicates that compliance is a key objective for HMRC. The types of transactions being scrutinised heavily overlap with those expected from participants of owner-managed businesses (OMBs) and close companies, which aligns with an emerging pattern of stricter measures designed to challenge tax risks in PSCs of OMBs and close companies.
HMRC‘s increasing focus on close companies
In the 2025 Budget, HMRC proposed a series of actions that would increase monitoring of transactions between close companies and their participators.
This included a clamp down on directors’ loan accounts which particularly targeted overdrawn accounts and written-off loans. The proposals called for more detailed reporting on transactions between close companies and their participators, dividends and gains.
As of April 2026, participators of close companies are required to disclose their percentage of shareholdings and dividends received from each close company in their 25/26 tax return. This shift further reflects HMRC’s growing scrutiny of PSCs of close companies.
2026 Budget updates
Despite HMRC’s tougher approach to close companies, the October 2026 Budget declared that they were not proceeding with the 2025 proposal that would have required close companies to report all transactions with shareholders to HMRC, at this time.
This measure has been shelved to provide relief to struggling small businesses by avoiding significant additional administrative pressure and preventing intensified financial burden.
Instead, they have prioritised campaigns that will increase understanding and compliance with the current rules and on using existing data to minimise tax avoidance, before increased reporting requirements are considered any further.
Additionally, there will be a greater focus on maintaining an accurate, up-to-date PSC register. This will be achieved through mandatory identity verification regimes led by Companies House, as well as data matching between HMRC and Companies House.
Areas that are in scope for data matching between Companies House and HMRC include:
- PSC register information will be compared to tax returns
- Share ownership records will be considered against dividend distributions
- Dormant companies displaying transaction activity
- Companies reporting losses while directors extract significant profit
Where beneficial ownership structures appear to be inconsistent or unclear, there will be increased risk of investigation. To prevent economic crime, the government has indicated PSCs will be held more accountable for corporate transparency, with greater penalties being put in place for false statements to Companies House.
HMRC overall strategy to close tax gaps
Whilst the proposed additional reporting on transactions between close companies and their participators is not proceeding at this time, the heightened data matching, identity verification and increased penalties all point towards an aligned strategy from HMRC to reduce the small business tax gap.
Furthermore, the Budget has funded 670 additional compliance officers and announced a substantial increase in HMRC compliance and enforcement funding, with £1.7bn allotted over the spending period. This investment highlights the small business tax gap as a government priority, and that participators and PSCs of close companies face particular scrutiny from HMRC’s increased compliance capability.
How can we help?
If you are unsure whether these requirements affect you, or have concerns about your upcoming tax return, amendments required to a recent return, or the need to make a disclosure in respect of earlier years, our Tax team can help you review your position and understand your reporting obligations. Please get in touch with our team to discuss how we can help.
