Close companies Flashcards
What defines a close company?
A company is close if it is under the control of five or fewer participators or any number of participators who are also directors.
How are participators defined?
Shareholders or creditors?
How is control definedd?
Control = possession of issued share capital allowing more than 50% of income of company if distributed or more than 50% of assets on winding up
What are the exceptions to a company being classified as a close company?
Exceptions include:
* If its shares are on a recognised stock exchange
* If it is controlled by one or more non-close companies
Who is considered an associate in relation to a close company?
An associate is a close relative, which includes:
* Spouse
* Parent
* Child
* Sibling
What is a nominee in the context of a close company?
A nominee is a person owning property on behalf of another.
Which loans fall under the special taxation effect on loans to participators?
All loans fall under a regime except for:
* Loans for goods or services with a duration not more than 6 months
* Loans made where the business involves money lending
* Loans to a borrower where total loans do not exceed £15,000, and the borrower owns less than 5% interest in the company
What is the tax effect if a loan is made by a close company?
Corporation tax must be paid on the loan calculated at the rate of income tax payable on dividends by higher rate taxpayers.
When must tax on a loan by a close company be paid?
This tax must be paid within 9 months and 1 day after the end of the accounting period in which the loan was made.
What happens if a loan to a participator is repaid?
The participator gets a tax refund.
What happens if a loan to a participator is written off or waived?
The company can still claim a tax refund, but the partiipator is deemed to have received a dividend equal to the amount of the loan. They will have to pay income tax on this.
What do distributions include in the context of a close company?
Distributions include:
* Living accommodation
* Other benefits in kind for participators, where benefits are not due to employment
What are the inheritance tax implications for close companies?
Anti-avoidance legislation means that the transfer of value by a close company results in the value of the gift being apportioned between shareholders.
What do the Transactions in Securities Rules aim to do?
They operate to counteract a tax advantage by changing a receipt treated as income for tax purposes into capital - best to ask HMRC if this rule may be triggered.
True or False: A company is classified as close if it has more than five participators.
False
A company is classified as close if it is under the control of five or fewer participators.
Fill in the blank: A loan made where the business involves _______ is an exception to the taxation effect on loans to participators.
[money lending]
This exception highlights the specificity of loan purposes in tax regulations.
