Written by the Business Advisory team.
Ward Goodman
February 28, 2025
From 5 April 2025, new tax return requirements will take effect, impacting sole traders and directors of close companies. These changes aim to enhance HMRC’s data collection and compliance monitoring, ensuring more accurate reporting of income and business activity. Understanding these requirements is crucial to avoiding any potential penalties and ensuring smooth tax submissions.
Background of the Legislative Changes
The UK government has introduced these updates as part of a broader initiative to improve financial transparency and prevent tax evasion. The changes will require more detailed reporting from individuals who operate as sole traders or hold directorships in close companies. These measures are expected to assist HMRC in tracking business activity more efficiently and reducing discrepancies in tax reporting.
Mandatory Reporting of Trading Dates for Sole Traders
One of the key changes is the requirement for sole traders to provide exact dates of business commencement or cessation in their self-assessment tax returns. Previously, this level of detail was not mandatory, but HMRC now requires accurate start and stop dates to improve tax record accuracy and enforcement.
Enhanced Disclosure Obligations for Directors of Close Companies
Directors of close companies – businesses typically controlled by five or fewer shareholders – must now provide additional details in their self-assessment returns. The required disclosures include:
- Company Name and Registered Number – Directors must report the official name of the company and its registered number, ensuring HMRC can easily identify and verify business associations.
- Total Dividends Received – Any dividends received from the close company must be reported separately from other forms of investment income, providing a clearer breakdown of personal earnings.
- Percentage Shareholding – Directors must disclose their percentage shareholding in the company throughout the tax year, including any fluctuations, with a particular focus on the highest percentage held during the period.
This change aims to increase transparency in how directors derive income from close companies and ensure proper tax treatment of dividends.
Implementation Timeline
These reporting requirements apply to self-assessment tax returns for the 2025/26 tax year and beyond. The Federation of Small Businesses has highlighted the need for early preparation, urging businesses and individuals to familiarise themselves with the new rules before the next tax return deadline.
Insights from ICAEW
The Institute of Chartered Accountants in England and Wales (ICAEW) has expressed their concerns about how these new requirements may impact taxpayers. Specifically, ICAEW has called for clearer HMRC guidance on calculating shareholding percentages, particularly when multiple classes of shares exist within a company. They also stress the importance of ensuring that taxpayers are given sufficient time and resources to comply with the changes.
Potential Implications for Taxpayers
These new requirements will increase the level of detail needed for tax filings, meaning:
- Increased Administrative Burden – Sole traders and directors may need to maintain more detailed records throughout the tax year.
- Potential for Higher Compliance Costs – Some individuals may need to seek professional tax advice to ensure accuracy in their self-assessment submissions.
- Penalties for Non-Compliance – Failure to provide the required information may result in penalties or delays in tax processing.
How Ward Goodman Can Assist
As tax regulations evolve, it is crucial to stay ahead of compliance requirements. Ward Goodman can assist sole traders and company directors with:
- Understanding New Requirements – Offering guidance on what these changes mean for your tax obligations.
- Tax Planning and Compliance – Helping you maintain accurate records and ensure tax efficiency.
- Self-Assessment Support – Providing professional assistance in preparing and filing tax returns correctly and on time.
For expert advice on navigating these changes, contact Ward Goodman today to ensure your tax affairs remain in order.
Final Thoughts
With the start of the 2025/26 tax year approaching, early preparation is key. Sole traders and company directors should take steps now to understand and implement the new reporting requirements. By keeping detailed records and seeking professional advice where necessary, businesses can ensure compliance and avoid unnecessary penalties.
