What is a close company
Subject to certain exceptions, a close company is a company which is either:
- Under the control of five or fewer participators, or any number of participators if they are also directors of the company, or
- In the event of a winding up, five or fewer participators, or any number of participators if they are also directors of the company, are entitled to receive the greater part of the company’s assets available for distribution among participators.
The definition of a participator is broader than the shareholders of the company and encompasses any individual or body corporate who has a share or interest in the capital or income of the company. This will therefore also include loan creditors as well as shareholders with or without voting rights.
Any UK subsidiaries of a close company will also be a close company. Generally, a non-UK company is not a close company unless specifically stated in the legislation.
Key implications
- Reporting obligations on self-assessment tax return
From 6 April 2025, any director of a close company is required to provide further information to HMRC in relation to their directorship. This includes details of their employer such as name and company registration number, dividends received during the year, and percentage shareholding calculated in reference to the nominal value of the shares.
The disclosure applies to dormant as well as active companies and a penalty of £60 may apply if you fail to provide the required additional information.
- Loans to participators
Anti-avoidance provisions require close companies to pay a temporary tax charge at the higher dividend tax rate – currently 35.75% - on the value of any loans to a participator of the company, or an associate of a shareholder of the company, still outstanding following nine months after the end of the accounting period.
The charge is repaid once the loan has been repaid or written off.
- Close Investment holding companies
From 1 April 2023, any close investment holding companies – generally close companies whose activity is holding investments such as share or property portfolios – are unable to take advantage of the small profits rate of corporation tax or marginal relief. Instead, such companies will always be liable to tax at the main rate of corporation tax, currently 25%.
- Extended meaning of distributions
Expenditure incurred in order to provide certain benefits to a participator, such as provision of accommodation, will be treated as a distribution unless the benefit is assessed as employment income (for example where the participator is also a director) or the participator pays the company back in full for the benefit.
- Disguised remuneration rules
Specific anti-avoidance provisions apply in relation to close companies to treat amounts deemed as disguised remuneration as employment income.
Close companies have always had a number of evolving special anti-avoidance provisions applicable to them. However, it is the introduction of the additional disclosure requirements on individual directors’ self-assessment returns that will impact the greatest number of individual taxpayers.
For more information, please contact advice@charter-tax.com or call us on +44 (0)20 7084 5771.
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17 September 2026
Disclaimer
The information provided by Charter Tax Consulting Limited is general in nature and does not constitute specific tax advice. Professional advice should be sought before deciding on a course of action, or refraining from a certain action, arising from the above information. Tax legislation changes regularly and the information contained herein is provided based on legislation as at 17 September 2026.
Taxation planning concerns the application of complex statute and case law to future events. Accordingly, however expert the opinion given, it is always possible that the Courts will take a different view of the application of the law.
We undertake to apply reasonable care and skill in the provision of advice. We do not guarantee that tax planning steps will in all circumstances achieve a certain legal effect.