As a taxpayer, changes in regulations can often seem daunting, especially with new tax return requirements for sole traders and directors of close companies coming into effect for the 2025/26 tax year ...
Let's embrace these tax return changes and equip ourselves with the knowledge needed for successful compliance!
New Tax Return Requirements for Sole Traders and Directors
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From April the 5th, both sole traders and directors must adhere to a stricter set of regulations and provide additional information as part of their self-assessment tax returns. Understanding these changes is crucial for smooth compliance and effective financial planning.
If you are a sole trader, you need to be aware that the requirement to report the date you started or ceased trading will become mandatory. Previously, this was a voluntary question on tax returns, but it now holds significant implications for your tax return accuracy!
When completing your self-assessment for the tax year 2025/26, you will need to clearly indicate when you commenced or ceased your trading activities. This applies not only to individual tax returns, but also to partnership returns and trustees' returns. By establishing a clear timeline, HMRC will have better visibility into your trading history, which could influence your tax calculations and potential liabilities.
For directors, new mandatory requirements will directly affect your self-assessment process. Currently, tax returns may ask whether you are a director of a close company, but from the 5th of April 2025, this question will require a mandatory response. A close company is typically one that is under the control of its directors or up to five shareholders!
In addition to affirming your director status, you will be required to provide several key pieces of information on your tax return. These include:
The name and registered number of the close company: This will help HMRC identify the company in question and associate it correctly with your tax return.
The value of dividends received from the close company: You must detail the total dividends received, which will be reported separately from other UK dividends. This separation aids in clearer tax assessments for both your income and the company's performance.
Your percentage shareholding: This information will reflect your stake in the company, and if your shareholding changes during the year, you are expected to report the highest percentage held during that time.
Understanding the nuances of shareholding is particularly vital, especially if the company has multiple classes of shares that can lead to different voting rights and financial entitlements. If you're unsure of how to determine your percentage shareholding effectively, it's advisable to seek professional assistance or refer to HMRC's guidance to avoid any potential pitfalls.
"What are the implications of non-compliance?"
It's essential to ensure that you answer these new queries accurately and completely. For both sole traders and directors, omitting this information could result in penalties or complications down the line. I feel that HMRC must provide clear guidance on these matters, particularly the complexities involved in reporting shareholdings where different classes of shares exist.
The government estimates that approximately 1.2 million sole traders and around 900,000 directors will be affected by these changes, making it necessary for everyone involved to prepare well in advance. Such widespread change often brings about increased scrutiny from HMRC, making compliance more critical than ever.
To navigate these changes effectively, consider updating your accounting systems and processes now to ensure you can report the new mandatory information accurately. Also, keep thorough records of your trading activities, shareholdings, and any dividends received.
Communicating with other stakeholders within your close company might also be helpful. If you share ownership or financial interests, being transparent about financial matters can facilitate smooth reporting and compliance.
"As the deadline for compliance approaches, it's crucial that both sole traders and directors prepare for these changes!"
Adapting to the upcoming laws will enable you to remain compliant and avoid unnecessary complications. Make sure you stay informed regarding any updates from HMRC and always seek professional advice if needed.
Let's embrace these changes positively and equip ourselves with the knowledge needed for successful compliance.
Until next time ...
ROGER EDDOWES Business Godparent
Would you like to know more?
If anything I've written in this blog post resonates with you and you'd like to discover more about these new tax return requirements for sole traders and directors, it could be a great idea to call me on 01908 774320 and let's see how I can help.
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Roger trained at Edward Thomas Peirson & Sons in Market Harborough before working at Hartwell & Co, followed by Chancery, as a partner. He started Essendon Accounts and Tax with Helen Beaumont in 2014 as a general practitioner with a hands-on approach.
Roger loves getting his hands dirty, working with emerging, small-to-medium and family businesses to ensure they receive the best possible accountancy advice. Roger utilises an extensive network of business contacts to leverage the best guidance and practical solutions.
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