Close Company Flashcards
What is a close company
A company which is a uk resident and controlled by:
5 or fewer sharholder
any number of directors who are also shareholders
What is control in terms of a closed company
owns more than 50% of the share capital, voting rights, distributable profits and assets distributable on winding up.
What do we need to inlcude when looking at ownership
Some ones associates
Grandparents and before
Children and after
Siblings
Spouse/ civil partner
business partners (no co directors)
How to estabilish if a company is a closed company
List in order the top 5 shareholders
(adding together any associates)
Do they have control?
In order list all the shareholders of the company to reach 51% are all these directors ?
What are the implications of a close company making a loan to one of its sharholders
Every time a close company makes a loan to a participator of the company, or to an associate of a participator section 455 tax must be charged to the close company
This is due 9 months and 1 days from the accounting year end
Charged on the lower of:
the balance the last day of the accounting period
or the amount at payment date
2021/22 32.5%
2022/23 33.75%
How does a company claim back Section 455 tax
Once the loan is paid back or written off, the company can relclaim the section 455 tax.
This can be relclaimed from 9 months and one day following the tax year in which the repayment was made
The close company need to apply for the repayment no later than 4 years following the end of the accounting period in which the repayment was made
What are the bed and breafasting rules (2)
The repayment of section 455 tax is restricted if ..
Within a 30 day period, following a loan repayment of £5000 or more, a subsequent loan is withdrawn of £5000 or more.
The initial loan is treated as a repayment of the subsequent loan and therefore section 455 tax will be charged.
The 30 day window is overlooked if prior to a repayment the loan was £15000 or more and then participator has made arrangements to make further withdrawls that are of £5000 or more.
Then section 455 tax will still be charged.
How is a loan write off treated for both the indivudal and the company
Shareholder/ director - Receive a dividend
Company - Debit under loan relationship rules/ not allowable for CT
If also an employee - receive dividend also pay class 1 primary national insurance
Company - pay class 1 secondary national insurance (allowable for CT purposes)
List 3 loans that excluded from section 455 charge
Loans made in the ordinary course of business of the company (bank/ moneylender)
Supply of goods or services in the ordinary course of trade unless the credit period exceeds 6 months or is longer than normally given to customers
Loan of no more than £15,000 made to a full time director or employee who does no have a material interest in the company (material being more than 5%)
If the employee acquired more than 5% holding at a time when the whole or part of the loan remained oustanding when are the said to have received the loan
On the date they aquired the additional share capital which meant they had a material interest.
How are benefits to an employee or director taxed
Under the earnings rule. Therefore allowable for CT
How are benefits to a participator who is not a director or an employee taxed
Treated as dividends. Therefore disallowable for CT
Cheap loan to …
director
employee
just participator
Individual -
Director - taxable benefit reported on P11D - IT
Employee - taxable benefit reported on P11D - IT
Just participator - treated as dividend
Company
Director - Class 1A NIC - deductable for CT
Employee - Class 1A NIC - deductable for CT
Just participator - disallowable for CT
Explain the following scenario
Mr dobie and wife 21% Director
Mr and Mrs Hoult 11% Director
Mr Clement 8% Director
Mr Ballis 4% Director
Mr Taylor 4% Director
Mr Megson 4% Director
52%
The company is not controlled by 5 or fewer participators and therefore on this basis it is not a controlled company
However all the directors (inclduing their associates) control more than 50% of the company and therefore it is closed
Who is a director for the purposes of a closed company
Anyone who acts as a director (chairman)
Any manager who along with their associates owns more than 20% of voting shares in the company.
