Advising Directors on New Share Reporting Rules for Self Assessment

Gone are the days when director share transactions could be vaguely bundled into a Self Assessment return. HMRC's Connect system is getting better at spotting discrepancies between company filings (like the CS01 confirmation statement) and what directors declare on their personal tax returns. For the 2025/26 tax year, it's crucial to get this right, as HMRC is tightening its focus on how securities are reported by individuals.

This isn't just about declaring dividends anymore. We need to proactively ask director clients about any changes in their shareholdings, whether through new issues, bonuses, sales, or gifts. Failing to report these correctly can lead to compliance checks, penalties for the director, and missed National Insurance liabilities for the company. Here’s a checklist to ensure your director clients stay compliant.

What's Changing?

HMRC now requires more granular detail on how different types of income and gains from securities are reported. While the forms themselves (SA102, SA108) may not have changed dramatically, the guidance and enforcement have. The key shift is the move away from lumping miscellaneous items together and towards specific declarations for different events.

Key areas of focus for HMRC include:

• Employment-Related Securities (ERS): Shares awarded to a director, especially for less than market value, create a taxable benefit. HMRC expects this to be declared correctly on the Employment pages (SA102).
• Capital Gains: With the Annual Exemption for Capital Gains Tax (CGT) remaining at £3,000 for 2025/26, more disposals will result in a tax liability. Reporting is required even if no tax is due, provided proceeds exceed £12,000.
• Dividend Income: The Dividend Allowance is just £500. It's easy for directors to exceed this, and HMRC will cross-reference this with company profit extraction methods.

Client Compliance Checklist

During your tax return preparation process, make a point of asking director clients the following questions. Don't assume they'll volunteer the information.

• Share Register Changes: Have there been any changes to the company's register of members in the last tax year? Ask to see it.
• New Shares Acquired: Did you receive any new shares in the company? How? Were they:
  • Initial subscriber shares on incorporation?
  • Purchased from the company or another shareholder?
  • Awarded as a bonus or part of your remuneration?
  • Acquired through exercising share options?
• Shares Disposed Of: Did you sell, gift, or otherwise transfer any shares? If so, what were the proceeds and to whom did they go?
• Company Records: Do board minutes exist to approve any share awards or transfers? This provides crucial evidence for valuation and timing.
• Valuation: If shares were acquired or disposed of at anything other than nominal value, how was the market value determined? An informal valuation may be needed.

Reporting Share Acquisitions & ERS

How you report a director acquiring shares depends entirely on the circumstances. If a director pays full market value, there is no immediate income tax charge. The amount paid simply becomes the base cost for a future capital gain calculation.

The real compliance trap is Employment-Related Securities (ERS). When a director receives shares for free or at a discount to their market value, the discount is treated as employment income.

• Calculate the Benefit: Market Value of shares LESS Amount paid by director = Taxable Benefit.
• Report on SA102: The taxable benefit amount must be included in the 'Tips and other payments not on P60' section of the Employment supplementary pages (SA102).
• Company Responsibility: The company must also report this on form P11D (unless the tax is handled via payroll) and pay Class 1A National Insurance Contributions (currently 15.0%) on the value of the benefit.

Worked example

David is a director of Innovate Ltd. The company had a strong year, and on 1st June 2025, the board awarded him 2,000 new ordinary shares as a performance bonus. The shares had a market value of £10 each at that time. David paid nothing for them.

In January 2026, he took a £5,000 cash dividend. In March 2026, he sold 500 of his own original subscriber shares (for which he paid £1 each) to a friend for £12 each (£6,000 proceeds).

Here’s how this must be reported on his 2025/26 Self Assessment return:

• Employment Income (SA102): A taxable benefit arises from the free shares.

  • Benefit: 2,000 shares x £10 Market Value = £20,000.
  • This £20,000 is declared as employment income on his SA102 page.
  • Innovate Ltd must file a P11D and pay £3,000 in Class 1A NICs (£20,000 x 15%).

• Dividend Income (SA100):

  • Total dividend: £5,000.
  • Less Dividend Allowance: (£500).
  • Taxable dividend: £4,500. This is taxed at his marginal rate for dividends.

• Capital Gains (SA108):

  • Proceeds: £6,000.
  • Cost (Base cost): 500 shares x £1 = (£500).
  • Capital Gain: £5,500.
  • Less CGT Annual Exemption: (£3,000).
  • Taxable Gain: £2,500. This is reported on the SA108 and taxed at 10% or 20%, depending on his other income and whether Business Asset Disposal Relief applies.

What to Do Next

The key takeaway is to be proactive. Don't rely on the P60 and dividend vouchers alone. The director's shareholding is now a fundamental part of their annual tax compliance review.

1. Integrate share questions into your standard client questionnaire.
2. Request company documents, such as the share register and board minutes, to corroborate what the director tells you.
3. Educate clients on the tax implications of using shares as remuneration. Explain that 'free' shares are rarely free from a tax perspective.

Treating these transactions with the right level of detail from the outset will prevent painful HMRC enquiries down the line and solidify your role as a trusted adviser.