Close companies and investment companies Flashcards
What is the definition of a close company?
Any UK resident company that is controlled by 5 or fewer of the largest shareholders (including associates) OR all shares that are owned by directors equate to a controlling percentage.
What are associates in the context of close companies?
Associates are connected parties who also have ownership in the company. Associates can be: Parents/Grandparents, Spouse, Brother/Sister and Children/Grandchildren, Business partners and trustees.
What are the exceptions to close companies?
Non UK resident companies cannot be close companies.
A subsidiary is only close if its parent is close.
What is the treatment for loans to participators with regards to a close company?
Any loan given to a participator will attract a 32.5% charge, which must be paid on the normal corporation tax deadlines i.e. 9 months and 1 day after period. If the loan is repaid before this date then no charge is necessary.
How can the 32.5% penalty charge be paid back to the company?
If the shareholder repays the loan, then HMRC has to pay back the company the 32.5% charge 9 months and 1 day after the loan has been repaid.
What are excepted loans in the context of close companies?
These are loans that are given to shareholders where the 32.5% tax penalty does not apply:
The loan is less than 15k.
It is made to a full time director or employee.
The borrower does not own more than 5% of the ordinary shares.
Define an investment company?
A company whose business consists of making investments and the majority of their income is generated through investment activities.
examples of investing income could be dividends, gains, interest and property income.
