More reporting to close the tax gap

The government is calling for additional reporting from close companies as it looks to reduce the small business tax gap.

Under new proposals now under consultation, close companies will have to report details of transactions with participators to HMRC, including the amount, date and details of the recipient for each transaction.

A close company is controlled by its directors or by five or fewer participators. A participator is someone who has an interest in the capital or income of the company, such as a shareholder.

HMRC says that it is not receiving “the full picture” and the proposals are focused on error and evasion in transactions that occur between a company and its owners. The consultation will run until June 10.

Announcing the consultation it said: “The risks we see in the tax gap are particularly acute with close companies, where there may not always be a clear distinction in practice between the company and its participators, and the merger of interests and finances can both encourage error and facilitate evasion.”

The new reporting requirements being considered would include detailed information about payments, via cash, bank transfer or otherwise.

Companies would also have to report details of sales of assets to the company, the purchases of assets from the company and dividends or other distributions.

The Treasury says the small business tax gap is 60 per cent of the overall tax gap, and the small business Corporation Tax (CT) gap makes up a significant proportion of this.

This tax gap has been increasing since the 2011 to 2012 tax year and stands at £14.7 billion in absolute terms.

The government says it will analyse the consultation responses and publish a summary of responses after the consultation closes.

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