The following Owner-Managed Businesses guidance note Produced by Tolley provides comprehensive and up to date tax information covering:
There are several sets of provisions in the Taxes Acts which relate to ‘close’ companies, most of which are anti-avoidance measures aiming to catch transactions between those companies affected and their owners, where there may otherwise be a tax advantage. Broadly speaking, most owner-managed or private family businesses will be close, but in many cases close company status may not be immediately apparent. For a useful aide-memoire to determine close company status, see our interactive flowchart. Alternatively, for a static pdf, see the Flowchart ― close company status.
For guidance on the effects of being a close company, see the Implications of close company status guidance note.
A close company is a company which is resident in the UK where it meets either Condition A or Condition B and does not fall within one of the specific exceptions (exceptions are discussed below).
Condition A requires that the company is under the control of either:
five or fewer participators
any number of participators who are directors
CTA 2010, s 439(2); Simon’s Taxes D3.102
There are links to further guidance on the definitions of ‘participator’, ‘director’ and ‘control’ below.
See Example 1.
Condition B requires that either of the following together possess, or are entitled to acquire, rights to receive the majority of assets available for distribution to the participators on winding up:
five or fewer participators; or
or would do so ignoring any rights held by any person as a loan creditor.
CTA 2010, s 439(3); Simon’s Taxes D3.102
In applying the test in Condition B, participators in / directors of companies entitled to receive assets on winding up are treated as participators / directors of the company under consideration. In other words, you look through any intermediary company. Participators which are companies are ignored, unless acting in a fiduciary or representative capacity.
To determine whether five or fewer participators, or any number of participator directors, are entitled to the greater part of the
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