What HMRC is actually proposing

The March 2026 consultation sets out plans requiring close companies to report transaction details involving participators to HMRC. The stated rationale is reducing the small business tax gap and tackling “error and evasion.” In practice, the proposals would capture the vast majority of owner-managed businesses — the bread-and-butter client base for most independent accounting firms across the UK.

For a regional practice with 200, 500, or 1,000 owner-managed business clients, the implications are significant. Each close company would require a new reporting process, additional engagement time, and additional data collection from clients who are already navigating Making Tax Digital. ICAEW has warned that these costs would fall not on non-compliant businesses — who are unlikely to comply voluntarily anyway — but on the law-abiding majority who simply do business through their accountants.

Why ICAEW is pushing back hard

The institute’s core argument is about proportionality. Creating a blanket data collection regime targeting all close companies, regardless of compliance history or risk profile, treats every owner-managed business as a potential tax evader. That is not just poor policy — it is counterproductive, because it diverts the time and attention of both accounting firms and HMRC away from the places where actual non-compliance exists.

ICAEW has also questioned whether HMRC has the capacity to process the volume of data that would be generated. This is a valid concern. The government’s own independent reporting has consistently highlighted HMRC’s resourcing challenges, and there is a real risk that the net effect would be enormous quantities of data that nobody acts on — while thousands of accounting practices absorb the cost of producing it.

Rather than sweeping reporting requirements, ICAEW advocates for targeted compliance interventions that focus on high-risk behaviour, backed by credible audit risk and proportionate, well-trained HMRC staff. The institute’s position reiterates its Autumn Budget 2025 argument that “doing business in the UK is too uncertain, too difficult and too expensive” — and these proposals sit in exactly that pattern.

What this means practically for accounting practices

For independent accounting practices, the most immediate implication is capacity planning. If these proposals move forward in anything close to their current form, the workload associated with close company reporting will need to be resourced — which means either hiring, reducing capacity elsewhere, or repricing services to reflect the additional work required.

The time to have that conversation with clients is not when the reporting obligation is imminent. It is now. Practices that communicate proactively — explaining what the proposals involve, what they mean for the client’s annual obligations, and how the firm intends to manage the additional work — will strengthen client relationships and have a credible basis for fee adjustment when the time comes. Practices that wait will face an awkward, reactive conversation at the worst possible moment.

This is also a moment to review client segmentation. For practices with large numbers of owner-managed business clients, a new HMRC reporting obligation of this kind is a material change in the cost to serve. Understanding which clients are affected, modelling the time impact, and building that into service agreements well ahead of any mandation date is precisely the kind of proactive practice management that distinguishes a well-run firm from one that is always reacting.

The wider pattern: compliance costs are compounding

These proposals are not an isolated development. The past three years have brought Making Tax Digital mandation, the FRS 102 Section 20 lease accounting overhaul, changes to research and development tax relief, expanded capital gains reporting requirements, and a series of HMRC data collection extensions. Each change individually is manageable. Cumulatively, they are transforming what it means to run a small accounting firm — and not in a direction that helps profitability.

The compliance cost problem is not just about time — it is about margin. As the direct costs of delivering compliance services rise, practices that have not reviewed their pricing since before MTD mandation are quietly absorbing losses they cannot easily see. A compliance engagement that took six hours three years ago may now take nine or ten, once digital bookkeeping review, quarterly MTD submissions, and increased client correspondence are factored in. At a flat fee, that is a significant and silent margin erosion.

Forward-thinking accounting firms are addressing this in two ways. First, by auditing service delivery time and repricing any engagement where the current fee no longer reflects the current workload. Second, by moving clients to fixed-fee advisory retainers that bundle compliance within a broader relationship — which makes the compliance cost less visible to the client while providing the firm with a stable, predictable revenue model that can absorb incremental regulatory burdens without constant renegotiation.

Protecting your margins while the rules keep changing

ICAEW’s warning about HMRC’s proposals is important, and practices should track the consultation response and any subsequent draft legislation carefully. The institute’s detailed submissions are worth reading, not just for the policy argument but for the practical framing they provide when talking to clients about why compliance is getting more complex and more time-consuming.

The broader challenge — managing rising compliance costs, protecting firm margins, and communicating proactively with clients — exists independently of any single policy change. The accounting firms most likely to navigate this environment successfully are those with robust pricing discipline, strong client communication processes, and access to peer insight on how comparable practices are handling the same pressures.

That last element — the peer network — is often what distinguishes a practice that leads from one that merely keeps up. As HMRC regulation becomes more complex and more frequent, independent accounting practices need collective intelligence and shared best practice as much as they need technical knowledge. If your firm is working to protect its margins and communicate its value more effectively in an increasingly burdensome regulatory environment, find out what the CharterGroup Alliance can offer at https://chartergroup.co.uk/join-us/become-a-member/.

Published by the CharterGroup team