Major Changes Coming for the 2025/26 Self-Assessment Tax Return
From 5 April 2025, new mandatory tax return requirements will impact sole traders, partnerships, trustees, and company directors. If you’re in business or run a close company, be prepared to disclose more details in your self-assessment tax return.
The UK government estimates that these changes will affect approximately 1.2 million taxpayers carrying on a trade and 900,000 company directors. Understanding the new reporting obligations is crucial to staying compliant and avoiding potential penalties.
What’s changing?
1. Reporting Trade Start and Cessation Dates
Previously, sole traders and partnerships were asked (but not required) to disclose when they started or ceased trading. However, from the 2025/26 tax year, this question will become mandatory. You will need to report the exact date of commencement or cessation in your self-assessment tax return. This applies to:
- Sole traders
- Partnerships
- Trustees managing taxable businesses
From my experience advising clients, many business owners fail to keep precise records of these dates, which can cause unnecessary complications. Now that this information is mandatory, ensuring proper documentation is more important than ever.
2. Enhanced reporting for Company Directors
If you are a director of a close company, additional reporting obligations will apply in your self-assessment tax return for 2025/26 and beyond.
Mandatory disclosures include:
- Company details: Name and registered number of the close company.
- Dividends received: Directors must report dividends received from their close company separately from other UK dividends.
- Shareholding percentage: Directors must state their percentage shareholding in the company throughout the year. If their shareholding changes, they must record the highest percentage held.
A close company is broadly defined as a company controlled by five or fewer shareholders (or by its directors). In my practice, many clients are unaware that their companies qualify as close companies, which can lead to misunderstandings about tax obligations. If you’re unsure whether your company falls under this definition, now is the time to seek professional advice.
Why this matters
The increased reporting obligations are aimed at improving transparency and ensuring tax compliance. However, they also introduce new complexities for business owners and directors. Failure to provide this information accurately could result in penalties or increased scrutiny from HMRC.
For business owners, this means ensuring all financial records, shareholder agreements, and dividend distributions are properly documented. Directors must also consider whether their companies have the necessary systems in place to track dividend payments and changes in shareholding. Many small business owners and directors will need additional accounting support to comply with these new rules.
More guidance needed
Providing this information won’t always be easy, particularly regarding shareholdings in companies with multiple share classes. Determining the highest percentage of ownership during the year can be complex, especially when share restructuring or new investments occur.
HMRC needs to publish clear guidance to help taxpayers comply and clarify the consequences of failing to provide the required details. From my perspective as a tax advisor, many clients will need proactive tax planning to ensure compliance without unnecessary administrative burdens.
What should you do next?
- Sole traders and partnerships should start keeping precise records of business start and end dates.
- Company directors must prepare to track and disclose dividend income and shareholding changes.
- Accountants and tax advisors should inform their clients and assist with compliance.
- All affected taxpayers should review their record-keeping practices and ensure they have clear documentation of any business changes.
How to prepare for compliance
- Review Business Records – Ensure accurate documentation of business commencements, cessations, and transactions.
- Maintain Dividend Logs – Keep a detailed log of dividends received and ensure they are correctly classified.
- Track Shareholding Changes – Document all changes in share ownership and the highest percentage held during the year.
Failing to provide accurate data could result in penalties or delayed tax return processing.
If you need assistance navigating these changes, contact angelo@vectigalistax.co.uk.
Stay ahead of the curve
For further updates on tax legislation, visit www.vectigalistax.co.uk.