Glossary · UK
What is Close Company?
A UK company controlled by 5 or fewer participators, or any number of directors. Most owner-managed companies are close companies, triggering additional rules on director loans, benefits in kind, and the S455 charge at 35.75%.
Full Definition
A close company is a UK resident company that is under the control of 5 or fewer participators, or of any number of participators who are also directors. A participator is broadly anyone with a share or interest in the company's capital or income, including shareholders, loan creditors with certain rights, and option holders. The "directors only" alternative means that a single-director, sole-shareholder company is always a close company. Most owner-managed limited companies qualify as close companies. Key tax consequences: (1) S455 Charge -- if the company makes a loan to a participator (or their associate) that is not repaid within 9 months of the accounting period end, the company pays a temporary Corporation Tax charge of 35.75% of the outstanding loan balance. This is repayable when the loan is repaid, written off, or released. (2) Benefits in kind -- close companies providing benefits to participators who are not employees are subject to special charge provisions under ITTOIA 2005. (3) Income attribution -- in certain anti-avoidance scenarios, income or gains of close companies can be attributed to UK-resident participators. (4) Restrictions on interest payments and management charges between associated close companies. Close company status also affects dividend payment planning, director loan account management, and the Enterprise Investment Scheme (EIS) -- a close company cannot qualify for EIS if it is a "close investment-holding company".