What is a close company? What is a participator? Why does it matter?  If you're unsure, start here for a basic guide and signposts to more detailed guidance on our site.

This is a freeview 'At a glance' guide to Close Companies and Participators. Subscribers see your detailed version.

At a glance

What is a close company?

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

Why does it matter?

From 1 April 2023:

There are special tax rules that apply when a close company:

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 & tests for control

Who is a participator?

A participator is an individual who is an owner or has a financial interest in the company, e.g:

What is meant by controlled by?

A company can be controlled by:

Someone may also have the ability to significantly influence someone who has all the above rights

Attribution of rights of control

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.

Useful guides on this topic 

Close companies: Definitions & control
What is a Close company? What are the tax consequences? What is a Participator? What is meant by Control of company? What are the tests for Control? 

Close Investment Holding Companies
When does a close company become a Close Investment Holding Company? What are the consequences?

Family Investment Companies
What is a Family Investment Company? Why use a Family Investment Company? What is the tax treatment of a Family Investment Company?

 Associated companies & tests for control
What is an associated company? What are the tax effects of associated companies? How do the control tests work?

Directors' loan accounts: Toolkit
HM Revenue & Customs (HMRC) have a director's loan accounts toolkit for advisers. This is our enhanced (freeview) version with planning points.

Close company loans toolkit (loans to participators)
What is the Corporation Tax treatment when a close company makes a loan to a participator (director-shareholder)? How do the 'bed and breakfasting' rules work?

Tax-free benefits and perks
What are the top tax-free benefits or 'perks' that can be used to incentivise your staff? How should you structure them?

 


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