Definition
A close company is, broadly, a UK company controlled by five or fewer shareholders, or by any number of shareholders who are also directors. Most owner-managed and family companies are close companies, and special tax rules apply to them.
The test
A company is a close company if it is under the control of five or fewer participators (broadly, its shareholders and certain loan creditors), or of participators who are directors, however many there are. In counting to five, shares held by a person’s associates, such as their spouse, parents, children and business partners, are treated as that person’s own.
What it means for tax
- Loans to participators. A loan to a shareholder or their associate that is not repaid within 9 months and 1 day of the period end triggers a section 455 charge. See director’s loan account.
- Benefits to participators. A benefit given to a shareholder who is not a director or employee is treated as a distribution, like a dividend.
- Close investment-holding companies. A close company that exists mainly to hold investments, other than land let commercially to unconnected people, pays the 25% main rate on all its profits and cannot claim marginal relief.
Read more: CT600A: loans to participators.