Are you a close company? Almost certainly yes
A company is “close” if it’s controlled by five or fewer participators (broadly, shareholders), or by any number of participators who are also directors. Since most small companies are owned and run by one person or a small group, the overwhelming majority — including every single-director company — are close companies. It’s the normal state, not a red flag.
Why the rules exist
When the same people own and run a company, it’s easy to blur the line between the company’s money and your own. The close-company rules are anti-avoidance measures to stop value being taken out tax-free or disguised. They only bite when you do exactly that.
The rules that actually matter
- Loans to participators (S455): lend company money to a shareholder and leave it unpaid past 9 months and 1 day after year end, and the company pays a 33.75% charge (refundable when repaid) — the overdrawn director’s loan problem
- Benefits as distributions: benefits given to a participator who isn’t an employee can be treated as a distribution (like a dividend) rather than a deductible cost
- Trivial benefits cap: directors of a close company are limited to £300 of tax-free trivial benefits a year
Staying on the right side
Behave normally and the close-company rules are a non-event: pay yourself through proper salary and dividends, keep company and personal money separate, document dividends, and clear any director’s loan before the deadline. We build all of this into your accounts and tax so it’s never a problem. Call 0114 327 1480.