SME Accounting News & Deep Dives: HMRC's Company Payout Overhaul, Doubled Corporation Tax Penalties Resume & the ESS Crackdown
Friday 4 September 2026 edition | Author: Richard
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This week brings several important developments for limited companies and growing SMEs. HMRC is consulting on a major overhaul of company distributions, Corporation Tax late-filing penalty notices have resumed at doubled rates, and new guidance makes clear that simply possessing an electronic sales suppression tool can lead to penalties.
We also look at a significant Upper Tribunal ruling on capital reductions and the confirmed date of the Autumn Budget.
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1. HMRC consultation could change how company payouts are taxed
HMRC’s consultation on the modernising of the taxation of distributions and repayments of capital from companies remains open until 14 September 2026.
The proposals are aimed mainly at payments made by companies to individual or trust shareholders. They are not intended to affect corporate shareholders directly, but they could have significant implications for owner-managed businesses, family companies and groups with holding companies.
The consultation covers:
Repayments of share capital and “new consideration”
Capital reductions
Demergers
Distributions from non-UK resident companies
Loans from non-UK resident close companies
Purchase of Own Shares relief
Transactions in Securities rules
The official HMRC consultation is options-based. No final legislation or implementation timetable has been published yet.
Professional summaries from Deloitte, Moore Kingston Smith and ICAEW’s September tax update also highlight the potential effect on close-company structures.
Holding companies and capital reductions targeted
One of HMRC’s main concerns is the use of a new holding company to create a larger amount of “capital” that can later be returned to shareholders.
The proposed approach would “freeze” the amount of capital recognised for distribution purposes at the amount originally subscribed for the investment. This is intended to align the income tax and Capital Gains Tax treatment and reduce opportunities to extract accumulated value as capital.
This could affect structures involving:
Share-for-share exchanges
Holding company insertions
Capital reductions
Non-statutory demergers
Planned profit extraction before a sale or succession
The consultation also proposes changes to the statutory demerger rules, potentially making them more accessible while reducing reliance on capital reduction routes.
New rules for non-UK resident close company loans
HMRC is also considering a Section 455-style charge on loans or advances from non-UK resident companies that would be close companies if they were UK resident.
At present, there is no equivalent broad charge where a closely controlled non-UK company lends money to a UK-resident shareholder. Under the proposals, the charge may fall on the individual through their personal tax return rather than on the overseas company.
This is especially relevant where a UK owner or director receives funds from:
An overseas holding company
A family investment company
An offshore group structure
A non-UK company controlled by a small number of shareholders
If your company uses any of these structures, review outstanding loans and planned transactions before the consultation closes.
Share buy-backs could face mechanical tests
HMRC wants to replace the current subjective “trade benefit test” for Purchase of Own Shares relief with more mechanical conditions.
The proposed tests could require:
The departing shareholder to hold at least 5% of the company’s equity
A minimum holding and working period, potentially two years
A full surrender of the shareholder’s shares and directorships
A complete exit within two years where the buy-back is made in stages
Consideration not to exceed market value
Longer holding and working periods where family connections remain
The proposals are not law yet. However, any limited company considering a buy-back, succession arrangement or shareholder exit should model the potential tax treatment under both the current rules and the proposed framework.
2. Corporation Tax penalty notices resume at doubled rates
HMRC has resumed issuing Corporation Tax late-filing penalty notices after a pause in its systems.
The important point for companies is that the fixed penalties have doubled where the statutory filing date is on or after 1 April 2026.
Under the current rates:
One day late: £200
Three months late: a further £200
Six months late: a penalty of 10% of unpaid Corporation Tax
Twelve months late: a further 10% of unpaid Corporation Tax
Companies that file late three times in a row can face fixed penalties of £1,000 each.
The HMRC late-filing guidance confirms the current penalty structure.
Companies do not need to contact HMRC simply because a penalty notice arrived late following the systems pause. If a Company Tax Return is outstanding, the priority is to file it immediately and then review the notice.
Check:
The accounting period covered
The statutory filing date
The date the return was actually filed
The penalty amount
Whether the company has a reasonable excuse for the delay
A corporation tax accountant can help check whether the correct penalty has been applied and whether an appeal may be appropriate.
3. Possessing an electronic sales suppression tool can trigger penalties
HMRC has published factsheet CC/FS68A on electronic sales suppression, or ESS.
ESS tools can hide or reduce individual transactions on electronic sales records. They may involve software, code, hardware or changes to a till or point-of-sale system.
The key warning is that HMRC can charge a penalty for possession or access even if the tool has never been used.
Possession can include:
Owning the tool
Having access to it
Trying to access it
Leaving it installed on a business device
HMRC can charge an initial fixed penalty of up to £1,000, followed by daily penalties of up to £75 per day while the business continues to possess or access the tool.
Repeat offenders who have received an ESS penalty within the previous five years can face the full £1,000 fixed penalty immediately, normally followed by the maximum daily rate.
The CC/FS68A factsheet is particularly relevant to retail, hospitality, food and drink businesses and any company that uses cash or till-based sales.
Directors should review:
Till and EPOS configurations
Third-party software access
Former employee access
Unapproved plugins or scripts
Whether sales records reconcile to bankings and stock movements
4. Hunt v HMRC confirms the risk around capital reductions
The Upper Tribunal ruling in Hunt v HMRC [2026] UKUT 342 (TCC) is another warning for shareholders seeking capital treatment on company payouts.
The case involved a close company capital reduction of approximately £10 million. The amounts were credited to shareholder loan accounts and treated by the taxpayers as capital.
HMRC argued that the transaction fell within the Transactions in Securities rules and represented an income tax advantage. The tribunals agreed that the capital reduction was effectively an extraction of value from the company and upheld HMRC’s counteraction.
The specialist case summary highlights the practical lesson: calling a payment a “capital reduction” does not, by itself, secure Capital Gains Tax treatment.
For close companies, risk is higher where a transaction:
Uses accumulated reserves
Credits shareholder loan accounts
Enables continuing shareholders to extract value
Produces a lower tax result than a dividend
Involves a holding company or reconstruction
Statutory clearance is not automatically required for every transaction, but it can provide valuable certainty where the amounts are significant or the structure is complex. Take advice before completing the transaction rather than trying to correct the position afterwards.
5. Autumn Budget confirmed for 28 October 2026
The Autumn Budget will take place on Wednesday 28 October 2026, according to the HM Treasury confirmation.
Growing SMEs should prepare cash flows and investment plans now, but avoid making decisions based on rumours.
Useful information to prepare includes:
A 12-month cash-flow forecast
Expected Corporation Tax liabilities
Planned equipment and technology purchases
Hiring and payroll plans
Director salary, dividend and pension proposals
Borrowing and refinancing requirements
Major contracts or investment decisions
Any areas where a Budget change could affect timing
This will allow your adviser to assess confirmed measures quickly after the announcement.
For context, see our Monday 31 August 2026 SME accounting news edition, the Wednesday 2 September 2026 edition, and our guide to legally lowering your Corporation Tax bill.
SME action list for the week
Review any planned dividend, buy-back, capital reduction or demerger.
Identify whether a holding company structure could be affected by HMRC’s consultation.
Check whether shareholders have loans from non-UK resident close companies.
Send any consultation feedback before 14 September 2026.
Check for outstanding Company Tax Returns.
Review any Corporation Tax penalty notice against the statutory filing date.
Inspect till, EPOS and sales-recording software for unauthorised tools or access.
Reconcile sales records, bankings and stock movements.
Seek clearance advice before a significant capital reduction.
Prepare cash-flow and investment information before the Autumn Budget.
Self-Assessment tick-box
Self-Assessment tick-box: tick this box if you are a company director or shareholder with dividends, benefits in kind, property income, separate self-employed income or a loan from a non-UK resident company. Review whether these amounts need to be reported on your personal tax return.
Find an accountant near me for your company
The right adviser can help your business respond to HMRC changes without relying on guesswork. This may include Corporation Tax compliance, director loan accounts, dividends, payroll, company restructuring and personal tax responsibilities.
If you are searching for an accountant near me, Accountant Search can help you compare suitable professionals through a curated directory and digital matchmaking/referral platform. We are not an accountancy practice and do not provide accounting services directly.
You can find an accountant, explore support from a limited company accountant, or visit the Self-Assessment accountant page. If your tick-box is marked, complete the SA registration form so your requirements can be reviewed.
For more practical guidance, read what to ask before hiring an accountant.
Author: Richard
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