Commentary

D3.410 Benefits provided by close companies to participators

Corporate tax
Corporate tax | Commentary

D3.410 Benefits provided by close companies to participators

Corporate tax | Commentary

Benefits by close companies

D3.410 Benefits provided by close companies to participators

Special rules apply to tax benefits provided by a close company to a participator. The general rule taxes certain benefits in kind and is discussed below. However if the general rule does not apply but value has been extracted from the company through tax avoidance arrangements the targeted anti-avoidance rule may well apply; see 'Benefits provided to a participator—tax avoidance arrangements' below.

Benefits provided to a participator—general rule

Where a close company provides a benefit, that is not specifically excluded (see below) to a participator the implications for the company and the individual concerned are1:

  1.  

    •     company — treated as making a distribution equal to the expense of providing the benefit, less any part of the expense made good

  2.  

    •     individual — treated as receiving a dividend and taxed accordingly

A reference to a participator includes an associate (see D3.103), and any participator in a company which controls another company is treated as being also a participator in that other company2.

The effect of this rule is that:

  1.  

    •     the company is not able to deduct the cost of providing the benefit in calculating its income chargeable to corporation tax (see D1.305)

  2.  

    •     if the participator is an individual, he is liable to income tax on the value; see Division E1.4

A benefit is very widely defined as an expense in connection with living or other accommodation, entertainment, domestic or other services, or any other benefits or facilities of any

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