From 6 April 2025, significant changes will take effect in the reporting of dividend income for self-assessment taxpayers in the United Kingdom. New regulations set out in The Income Tax (Pay As You Earn) (Amendment) Regulations 2025 (SI 2025/84) aim to improve transparency and accuracy in the reporting of dividends, particularly for directors of close companies and individuals operating unincorporated businesses.
The updated requirements are expected to affect both the process and the level of detail required when filing tax returns for the 2025/26 tax year, the first returns for which will be due in 2027.
This move comes as HM Revenue & Customs (HMRC) continues to enhance measures against tax evasion and ensure compliance across varying business structures.
Key changes to dividend reporting requirements
Currently, directors and individuals are only required to report the total dividends received from all sources on their self-assessment tax returns. There is no need to distinguish dividends from their own company and those from external investments. However, starting from the 2025/26 tax year, this will change.
The updated rules mandate additional information to be disclosed, especially by directors of close companies, to give HMRC clearer oversight of owner-managed business activities. These measures are designed to minimise ambiguity, enable better cross-reference with company filings, and enhance the integrity of tax reporting. HMRC has outlined the changes to increase the granularity of information available for monitoring dividend declarations.
Detailed disclosure for directors of close companies
Under the revised framework, directors of close companies a term that generally includes companies controlled by five or fewer shareholders or directors will face new reporting obligations.
Directors must now confirm their directorship status, provide the name and registered number of the company, state the exact amount of dividends received from that company (distinct from other investment income), and disclose the highest percentage of share capital held during the year. This level of detail will enable HMRC to better match personal income declarations with company records.
The Association of Taxation Technicians (ATT) has called on HMRC to clarify how to determine the 'highest percentage of share capital held,' particularly for businesses with multiple classes of shares, differing voting rights, or varied dividend entitlements.
Understanding share capital reporting
The requirement to declare the highest percentage of share capital held during the year is considered one of the more complex aspects of the new rules. To ensure correct disclosure, directors are advised to keep accurate and up-to-date share registers and fully document changes in shareholding.
Any changes in ownership or capital structure should be officially recorded in company filings and reflect in dividend payment records. Guidance from HMRC on calculating shareholdings in companies with complex structures is anticipated, particularly to cover scenarios where share classes or rights differ.
Until such clarification is issued, directors are encouraged to maintain detailed records to facilitate accurate reporting under the new regime.
Impact on unincorporated businesses
The regulations also introduce new requirements for sole traders and members of partnerships. From April 2025, individuals operating unincorporated businesses must provide their business start and cessation dates in mandatory boxes on the self-assessment return.
This will assist HMRC in identifying when business activities begin and end, ensuring appropriate application of reliefs such as Business Asset Disposal Relief and enforcing compliance among businesses with intermittent or evolving activity.
Situations in which a hobby transitions to a business or a gradual winding down of operations occurs will particularly benefit from precise reporting of these dates. Maintaining clear, reliable records is essential to support these declarations and avoid complications regarding eligibility for reliefs.
Penalties for failure to comply
The expanded requirements come with stricter enforcement mechanisms. Any omission of the newly required information may incur a fixed penalty of £60 per missing piece of data.
This penalty regime, introduced via the Finance Act 2024, is intended to address cases where information is required by HMRC for compliance but does not necessarily relate directly to the tax liability calculation. Taxpayers will first encounter these penalties when filing the 2025/26 self-assessment returns, due in 2027.
It is essential for affected individuals and businesses to familiarise themselves with the new expectations to avoid unnecessary financial penalties.
Final Summary
The introduction of more stringent dividend reporting requirements signifies an important step in HMRC’s strategy to enhance the oversight and accuracy of self-assessment disclosures.
Directors of close companies will need to adopt more robust reporting practices, while sole traders and partnerships must monitor and document business activity dates carefully. As the penalties for non-compliance are set to be enforced from the 2025/26 returns, proactive record keeping and seeking professional advice early will be crucial for all affected.
For those navigating the latest tax changes, resources like the Pie app can assist in staying up to date with developing HMRC requirements.
