Implications of close companies

Close companies make up a considerable proportion of businesses within the UK and in its Company Taxation Manual at CTM60055 HMRC notes: ‘A company controlled by a small group of persons may arrange its affairs to enable those persons to avoid income tax.’ Consequently it has sought to introduce legislation to counter such advantages. As a result there are special tax provisions applicable to close companies so it is important to ensure the basics of these companies are understood starting with the relevant criteria and definitions.

What is a close company?

Although the relevant legislation has been in place for some time the starting point is now found in CTA 2010 s 439 where a close company can be defined by meeting either condition A or B.

Condition A looks at the aspect of ‘control’. A company is a close company if it is...