While dividend taxation itself isn’t changing, how dividend income is reported is, and the direction of travel is clear: HMRC wants far greater visibility over how owner‑managed businesses extract profits.

What applied for 2024/25

For the 2024/25 tax year, Self Assessment reporting for most shareholders remained relatively high‑level. Individuals were generally required to disclose:

• Total dividend income received in the year (UK and non‑UK)
• Dividend allowance usage
• Basic details of directorships (if applicable)

There was no requirement to break this down by individual company or disclose detailed shareholding information.

That position changes for 2025/26.

What’s new from 2025/26

From the 2025/26 tax year onwards, directors and shareholders of close companies will face new, mandatory disclosure requirements on their Self Assessment returns. You’ll now need to report:

1. Companies you are involved in

For each close company:

• Company name
• Company registration number
• Whether you were a director during the year

2. Shareholding information

The highest percentage shareholding you held at any point during the tax year.

This is a key change. Even if your shareholding reduced later in the year, HMRC wants to know the maximum percentage held, not just the year‑end position.

3. Dividends - broken down by Company

Rather than one total dividend figure, dividends must now be:

• Attributed to specific companies
• Reported separately for each company you received dividends from

This removes any ambiguity over where dividends originated and makes cross‑checking far easier for HMRC.

Why HMRC is doing this

Although HMRC has framed these changes as “additional reporting”, the purpose is clear. This gives HMRC much better visibility over:

• Dividend allocations that don’t align with shareholdings
• Profit extraction arrangements designed mainly to suppress income tax
• Situations where dividends arguably look more like salary in disguise

Many directors aren’t doing anything deliberately wrong, they’re simply running dividend strategies that were never revisited as businesses evolved. These changes significantly reduce HMRC’s tolerance for ambiguity.

What happens if HMRC challenges dividends?

If HMRC decides that dividend income is actually disguised employment income, the consequences can be severe:

• Higher income tax
• Employee and employer National Insurance
• Interest and penalties

On top of that, missing or incomplete disclosures will attract a £60 fixed penalty per omission, although the real risk lies in increased scrutiny rather than the penalty itself.

Practical implications for directors and shareholders

If you:

• Changed shareholdings during the year
• Took dividends irregularly
• Paid dividends to multiple shareholders on different terms
• Haven’t kept formal dividend paperwork up to date

Then this is the point at which things are likely to unravel under closer HMRC review.

What you should be doing now

Before filing your 2025/26 return, it’s sensible to:

• Review historic dividend payments and paperwork
• Check dividends align with shareholdings
• Confirm director and shareholder positions throughout the year
• Make sure bookkeeping and dividend records are consistent

For many business owners, this will mean revisiting dividend strategies that “just grew over time” rather than that were carefully structured.

Final thought

These changes don’t mean dividends are being targeted unfairly,but they do mean that sloppy or informal arrangements are no longer invisible.

If you’re unsure whether your dividend setup would stand up to scrutiny under the new rules, it’s far better to review it now than explain it later.

If you’d like help reviewing dividend arrangements or preparing for the new 2025/26 reporting requirements, feel free to get in touch.