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.

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 privately owned and controlled by five or fewer individual participators.

  • The majority of small companies and many family companies are Close companies.
  • There is a variation on a Close company, the Close Investment Holding Company is a company that is mainly non-trading or an investment company or a landlord company renting property to a connected party, such as a participator or their associate. Family Investment Companies are often CIHCs.

Why does it matter?

From 1 April 2023:

  • The new upper and lower limits for Corporation Tax are apportioned according to the number of companies which are Associated companies for Corporation Tax: Associated companies are determined by looking at the Close Company control tests.
  • Close Investment Holding Companies pay Corporation tax at the main rate.

There have also long been special rules for tax purposes that 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 the 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.

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:

  • A shareholder
  • A director
  • A loan creditor

What is meant by controlled by?

A company can be controlled by:

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

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

Attribution of rights of control

  • A participator may have other people's rights of control 'attributed' to them, such as those of family or their nominees and their associates.
  • Close Company definitions and control tests are used to work out who has what rights, who is associated with who and who controls a company. There may be multiple controlling combinations.

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.