Close Company Flashcards
What is the definition of a close company
A company that is a UK resident and is controlled by either
5 or fewer shareholders
Any number of shareholder who are also directors.
What is control
The persons possess or are entitled to acquire the greater part of the companies Share capital/ issued share capital voting power Distributable profits Assets distributable on a winding up
Who is a director in a close company context
Any one who acts as a director. Also managers of the company who together with their associates owns more that 20% of the voting shares in the company
What are the special tax treatments on loans made to participator
S455 tax on loan that remain unpaid 9 months and 1 day after the year end
Taxable benefits arising on cheap loans which exceed £10,000
What are the implications of a cheap loan of over £10,000 and how can this be avoided
The benefit that arises must be reported on the P11D Individual pays IT and the company pays Class 1A NI is paid (this is CT deductible)
The interest needs to be paid before the 6th July following the end of the TY
Explain the procedure of giving a bonus to pay overdrawn DLA
The bonus needs to be paid gross of IT and EE’s NI
Also need to consider the Er’s NI remembering that the bonus and Er’s NI is deductible for CT.
Explain the procedure for wavering a loan
Not deductible under NTLR rules
For the individual this is treated as a dividend
For the company this is treated a distribution Er’s NI and EE’s NI is due.
Only Er’s NI is deductible for CT
No NI implications if under the rare circumstance the loan was made to the person in capacity as shareholder rather than director.
Explain S455 tax when does this become refundable
Tax at 32.5% of the lower of the loan at
YE
or 9 months and 1 day after YE
Refundable 9 month and 1 day
Explain bed and breakfasting
The S455 repayment is restricted if;
If within a 30 day period a repayment of £5000 or more is made and then a drawing of £5000 or more is made in the subsequent year then the subsequent drawing is matched to the repayment not the original loan
Or if the loan outstanding was £15000 or more and at the time of repayment there is an arrangement to draw further advances of more than £5000 (regardless of a 30 day period)
How does a close company account for interest on loans to and from a participator
Interest receivable - Taxable on accruals basis
Interest payable - Deductable on an accruals basis as long as it has been paid within 12months of the year end.
Explain the procedure for raising a dividend
To avoid NI contributions a dividend can be raised. IT for the individual.
The company has to issue dividend to all shareholder
Must have sufficient distributable reserves.
What are the Q on close companies
1) Mr Smith calculating IT and NI implications and how to clear DLA
2) 2 shareholder 1 entitled shareholder
Etan bed and breakfast issues
Waiver loan
Benefits unpaid
S455 tax
loan from shareholder issue with accrued deductions.
When a company owns interest to a participator what must they do?
Must withhold 20% IT tax.
