This is a freeview 'At a glance' guide to Close Companies and Participators.

What is a close company? What is a participator? Why does it matter? If you are not sure, start here for a basic guide and signposts to more detailed guidance elsewhere on our site.

At a glance

What is a close company?

Broadly, a company is 'close' if it is privately owned and controlled and done so by five or fewer individual participators.

The majority of small companies and many family companies are close companies, see Close Company definitions and control.

What is a participator?

Broadly, a participator is an individual who has a financial interest in the company in terms of:

  • Voting power. 
  • Share capital of the company.
  • Rights to capital on winding up.

For example:

  • A shareholder.
  • A director.
  • A loan creditor.

Why does it matter?

There are some special rules for tax purposes which apply when a close company:

  • Makes a loan or provides a direct or indirect benefit to a participator.
    • See Director's Loan Account Toolkit which provides an outline of the tax consequences for director and company.
    • See Close Company Loan Toolkit for details of the company tax charges for outstanding loans, deemed loans via partnerships and LLPs, bed and breakfasting of repayments, examples and planning points.
  • Is an investor or rents property to a connected party, such as a participator or their associate. A company is taxed at the main rate, see Close Investment Holding Companies. Since 1 April 2015, when the main rate of Corporation Tax aligned with the small company rate this has ceased to be an issue however may become relevant from April 2023 when Corporation Tax rates change.

There are additional rules which apply when companies are associated. The definitions of associates are closely tied into Close Company definitions and control, see Associated companies: from April 2011.

Top tips

Most private companies are close companies. It is quite safe to assume that if a participator extracts any value from their company without an Income Tax charge there is likely to be a special rule which will impose either a Corporation Tax charge on the company or an Income Tax charge on the participator.

There is an exemption for small employment-related loans and various other tax-free benefits, see Tax-free benefits and perks.

Getting bogged down with the close company rules?

Contact Virtual Tax Partner online support for practical and cost-effective advice.

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