Starting in the 2025/26 tax year, new mandatory requirements will be introduced for sole traders and company directors filing self-assessment tax returns. These changes aim to enhance the data HMRC collects, ensuring greater transparency and accuracy.
While some of these requirements were previously voluntary, they will now be compulsory for taxpayers who start or cease trading, as well as for directors of close companies. Understanding these changes is crucial for affected taxpayers to stay compliant and avoid any potential issues when filing their returns.
This blog will explore who will be affected and give an overview of what changes are expected.
So, let’s start at the beginning!
This initiative was first announced in 2022 as part of a broader consultation on enhancing the self-assessment process. While some of the proposals discussed during the consultation were not taken forward—such as those requiring additional information from employers—others have been adopted, particularly those that impact sole traders and directors of close companies.
These changes will take effect on 5 April 2025, affecting tax returns for the 2025/26 tax year and beyond. HMRC estimates that around 1.2 million sole traders and 900,000 company directors will be impacted by the new rules. The legislation primarily focuses on making voluntary reporting mandatory, particularly for those who start or cease trading during the year and for directors of close companies, ensuring that HMRC receives more comprehensive data. This marks a shift toward greater accountability, with the aim of improving the tax system’s effectiveness and reducing potential fraud or errors.
Changes for Sole Traders and Businesses
From April 2025, taxpayers must report the date they start or cease trading on their self-assessment tax return. While this was previously voluntary, it will now be mandatory for the 2025/26 tax year and beyond. This applies to personal, partnership, and trustee tax returns.
Changes for Company Directors
For directors of close companies, the government has introduced additional reporting requirements. In addition to confirming whether they are a director, they will now need to include:
- The name and registered number of the company.
- The value of dividends received from the company (separately from other UK dividends).
- Their percentage shareholding in the company for the year, with a note if this percentage changes during the year (recording the highest shareholding).
A close company is one controlled by its directors or five or fewer shareholders, and these new requirements apply to tax returns for the 2025/26 tax year and beyond.
What’s Next?
So, now that you know the context of the changes and what they mean for you – what are the next steps?
While the new rules are clear, they may pose challenges for taxpayers, especially regarding complex shareholder structures. Experts, such as Richard Jones from ICAEW, have raised concerns about how easy it will be to determine shareholding percentages in cases with different share classes. Taxpayers will need clear guidance from HMRC on how to comply and what the consequences will be for failing to provide this information.
For now, these changes will affect around 1.2 million taxpayers and 900,000 company directors. So, it’s important for those affected to stay informed and prepare for these changes ahead of the 2025/26 tax year.
If you feel like you need any extra information or support with this, please feel free to contact me now for a consultation!