Implications of close company status

The main implications of close company status are as follows:

• •a penalty tax at a rate of 32.5% (25% for 2015/16 and earlier years) on the amount of any loans to the company’s ‘participators’ (broadly its shareholders)
• •a tax charge at a rate of 32.5% (25% for 2015/16 and earlier years) on the cash equivalent of benefits provided to ‘participators’, where these are not already taxed as earnings
• •where interest is due from a close company to a ‘participator’, there are special rules regarding the timing of corporation tax relief for the interest ― see Late interest for an explanation of the rules
• •relief may be available for interest on loans taken out by individuals to purchase shares in a close company
• •where an overseas company would be close if it were in the UK, there are anti-avoidance rules which attribute gains by the company to its participators
• •there are anti-avoidance rules relating to transfers of value by close companies for IHT purposes (see the Close companies guidance note (subscription sensitive))
• •the Transactions in Securities (TiS) rules, for income tax purposes, only apply to close companies (see the Transactions in securities guidance note)

These are discussed briefly below with links to further detailed notes where necessary.