Monthly Newsletter May 2026

Welcome to the May 2026 edition of the ASWATAX newsletter.

This month we cover a consultation that will directly affect almost every owner-managed business in the country, a reminder on the benefits of a properly structured group above multiple companies, and a short but important note on Wills.

As always, if any of the topics covered raise questions for your own position, please do not hesitate to contact us.

1. HMRC Is Coming for Your Director's Loan Account: The Participator Reporting Consultation

On 19 March 2026, HMRC published a consultation titled Reporting Company Payments to Participators. The consultation is open until 10 June 2026, and if the proposals become law, they will change the reporting obligations of almost every owner-managed company in the UK. Business owners, directors, and their advisers need to understand what is being proposed and why, because the direction of travel is clear: HMRC intends to have systematic, real-time visibility of every financial transaction between a close company and its shareholders.

Why Is HMRC Doing This?

The answer lies in the corporation tax gap. HMRC estimates that the small business corporation tax gap currently stands at £14.7 billion and has been rising steadily since 2011/12. A significant part of that gap is attributed to what HMRC describes as the blurring of the distinction between company and personal finances in the close company context. In plain terms: directors taking money out of their companies in ways that either avoid tax entirely, are incorrectly characterised, or are simply not declared.

The existing reporting framework only triggers an obligation where a tax charge has formally crystallised, most obviously under the section 455 corporation tax charge on outstanding director's loan accounts. HMRC has no systematic visibility of the transactions happening before that point,  the informal drawings, connected party asset transfers, and undocumented loans that may or may not eventually surface on the corporation tax return. The consultation is designed to close that gap entirely.

What Is a Close Company?

Most owner-managed businesses are close companies. A close company is broadly a company controlled by five or fewer participators, or by any number of participators who are directors. A participator is any person with a share or interest in the capital or income of the company. For most owner-managed businesses, the directors and shareholders are one and the same, and the close company definition is met almost automatically. The proposed rules are aimed primarily at this population, though as discussed below the scope extends considerably further.

What the New Rules Would Require

The consultation proposes that close companies report detailed information about all transactions with participators directly to HMRC. This is a significant expansion of the current position, where the reporting obligation is limited to cases where a section 455 charge has arisen. The transactions proposed to be caught are broad:

Transactions Proposed to Fall Within the New Reporting Requirement

Cash withdrawals and other payments from the company to a participator (by any means)

Loans made by the company to a participator (including informal or undocumented advances)

Dividends and other distributions paid to a participator

Sales and purchases of assets between the company and a participator (in either direction)

Any other transfer of value from the company to a participator

Repayments of loans by participators to the company

Instances where the company releases or writes off a loan to a participator

For each transaction, the company would need to report the identity of the recipient, the amount, and the date. The method and frequency of reporting is still under consideration, with HMRC's preferred approach appearing to be an annual cycle tied to the corporation tax return, potentially through an updated CT600A form or a new digital system. More frequent or real-time reporting has not been ruled out.

What Changed in Your 2025/26 Self-Assessment Return

Before the consultation proposals become law, HMRC has already introduced new requirements that apply from the 2025/26 tax year. Company directors are now required to complete a supplementary page in their personal Self-Assessment return confirming whether their company is close and providing three specific pieces of information: the company's name and registration number, the amount of dividend income received from it, and the director's percentage shareholding (with the maximum figure if this changed during the year).

This change represents the first stage of a structured expansion of HMRC's visibility into close company affairs. The supplementary page requirement is simple and the information required is limited. But it signals clearly where HMRC is heading: systematic identification of all close company directors, followed by the broader transaction reporting the consultation now proposes.

Why This Matters Now

The consultation does not distinguish between small businesses and large privately-owned groups. Any company that is technically close is in scope, which includes a large number of medium-sized businesses and, notably, many private equity-backed structures where the fund's limited partnership structure causes the close company definition to be met by attribution. The reporting burden for groups with intra-company loans, asset transfers, and intercompany dividend flows could be very substantial.

For most of our clients, the immediate practical implication is straightforward: the director's loan account position needs to be in order before mandatory reporting begins. Every informal drawing, undocumented transfer, and connected party transaction that sits in grey territory today will be reported to HMRC under the proposed rules. The time to address any historic or ongoing position is now, while the rules are still in consultation and the options for managing the position are widest.

2. MULTIPLE COMPANIES, NO STRUCTURE: A PROBLEM THAT GETS MORE EXPENSIVE EVERY YEAR YOU LEAVE IT

One of the most consistent patterns we see in owner-managed businesses is the accumulation of multiple companies with no formal group structure above them. A business owner starts with one company, incorporates a second for a new activity or to separate risk, acquires a third, and finds years later that the three companies have grown substantially in value, are operationally interlinked, and have no holding company above them. Every year this continues, the cost and complexity of fixing it grows.

This month we published a case study on our website covering exactly this scenario: a healthcare business owner with three standalone trading companies, no holding company, no income splitting with a spouse who held no shares, and no structure for accumulating investment returns tax-efficiently. The restructuring we designed addressed all of those issues at nil tax cost, and the combination of the April 2026 BPR cap and the companies' combined value of £4 million made the planning more urgent than it would have been even a year ago.

The April 2026 BPR Cap Changes the Calculation

Before April 2026, Business Property Relief applied at 100% to the full value of qualifying unquoted trading company shares, regardless of the amount. From April 2026, the relief is capped at £2.5 million per individual at 100%, with only 50% relief on the excess. For a business owner whose company is worth more than £2.5 million and whose spouse holds no shares, this creates an immediate and quantifiable IHT exposure on the excess that did not exist before.

In the case study, the three companies were worth a combined £4 million, all held by the husband. Under the new cap, £2.5 million attracted full BPR and the remaining £1.5 million attracted only 50% relief, leaving £750,000 in the taxable estate and an IHT charge of £300,000 that would not have arisen before April 2026. The solution was to gift shares in the holding company to the wife, using her own untouched £2.5 million BPR allowance to cover the excess entirely. That solution required a holding company to be in place. Without one, the gift would have involved shares in an active trading entity, which creates operational, regulatory, and commercial complications that make the planning considerably harder to implement.

The Four Problems a HoldCo Fixes

Beyond the BPR cap, the absence of a holding company creates four structural problems that compound over time. Asset protection between the operating companies is absent: a claim against one entity has no structural barrier between it and the others. 

Profit extraction is inefficient: dividends flow directly to the individual shareholders at up to 45% with no ability to accumulate at corporation tax rates or to split income with a lower-earning spouse. 

The structure provides no platform for intergenerational planning: gifting shares in active trading companies is commercially and practically difficult. 

And the exit or refinancing position is unnecessarily complex: a trade buyer or investor dealing with three separate unconnected companies faces more due diligence, more risk, and typically pays a lower price than for a properly structured group.

The share-for-share exchange used to insert a holding company is well understood by HMRC, tax-neutral when executed correctly with prior clearance, and can be completed relatively quickly once the structure is designed and the documentation prepared. The professional cost of doing it is a fraction of the IHT exposure it removes and the efficiency gains it unlocks from day one.

If you own more than one company and have no holding company above them, or if the combined value of your business interests exceeds £2.5 million and your spouse holds no shares, the conversation about structure is worth having now. You can read the full case study on our website.

3. YOUR WILL: WHEN DID YOU LAST READ IT?

A Will that was accurate and well-drafted five years ago may now be actively working against the estate plan it was intended to achieve. The tax rules that Wills are built around have changed substantially in a short period of time, and most clients have not revisited their Wills since those changes came into force.

The Business Property Relief cap introduced in April 2026 means that a Will drafted on the assumption that business assets would pass free of IHT at any value may now leave a significant taxable estate that the plan did not account for. The pension IHT changes arriving in April 2027 mean that nil rate band and residue clauses that made sense before may produce very different outcomes once the pension fund is brought into the estate. The Long-Term Resident rules introduced for overseas assets mean that foreign property and investments that were assumed to be outside the UK IHT net may now be fully within it. And the residence nil rate band tapering, which reduces the relief for estates above £2 million, catches many clients who did not expect to lose it.

None of these changes requires a complete rewrite of a Will. But each of them requires a review. The conversation between your tax adviser and your solicitor is the one that tends not to happen unless someone specifically arranges it. If your Will predates April 2025, or if your estate has changed materially in the past two or three years, that conversation is overdue.

If there is something we can help with, please get in touch.