New tax authority requirements for small companies on transactions with owners

The UK government is proposing new changes that will directly affect small and medium-sized businesses. Under these plans, so-called “close companies” — businesses controlled by a small number of shareholders, typically their own directors or owners — will be required to provide much more detailed information about all transactions with their participators.

Under the new rules, every transaction between the company and its shareholder or director will have to be reported to the tax authority. This means companies will need to provide specific details for each transaction, including the amount, the date, and the recipient’s information. In practice, this removes the ability to rely on general figures or approximate records — all movements of money will need to be clearly documented.

These requirements will cover a wide range of financial activities, including loans to directors or shareholders, withdrawals of funds, dividend payments, transfers of assets between the company and its owner, and any other forms of value being passed between them. Essentially, any movement of money or assets between the company and those who control it will become fully visible and subject to review.

The main objective behind these changes is to reduce the tax gap. Small businesses account for a significant portion of unpaid or underreported taxes, and one of the key issues is the lack of transparency in transactions between companies and their owners. At present, the tax authority does not always have a complete picture of how and when money is being moved. These new reporting requirements are intended to improve visibility and allow discrepancies to be identified more quickly.

For businesses, this will mean one clear thing — increased administrative workload. Companies will need to maintain more detailed and up-to-date records. Informal or delayed bookkeeping practices will no longer be sufficient, and every transaction will need to be properly recorded and justified.

At the same time, the risk of penalties will increase. Missing transactions, inaccurate reporting, or poorly maintained records could all lead to compliance issues. As a result, company owners will need to be much more careful in how they manage company finances.

Another important impact is the reduction of flexibility in how company funds are used. In many small businesses, it is common for owners to use company money in a relatively flexible way. Under the new rules, this approach becomes much riskier. The distinction between personal and company finances will need to be clearly maintained, as every movement will be visible and potentially scrutinised.

Although these changes are still at the consultation stage, the direction is clear — tighter control and greater transparency. Businesses with well-managed and accurate accounting systems are unlikely to face major difficulties. However, those operating with less structured financial practices will need to make significant changes to avoid future problems.