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:

  • 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 are special tax rules 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.

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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