Advanced Taxation (UK) · Corporation tax: the scope of corporation tax, including close companies and investment companies

Close Companies and Close Investment-Holding Companies

Updated 11 October 2026 · Fact-checked

A close company is a UK-resident company controlled by five or fewer participators, or by participators who are directors. Loans to participators trigger s455 tax at 33.75%, and benefits to participators are treated as distributions. A close investment-holding company is a close company that is not mainly trading or letting to unconnected people, and it pays the main rate only.

Understand Close Companies and Close Investment-Holding Companies

A close company is one that a small group controls. Tax law worries that such owners can pull value out of the company without paying income tax, for example through loans or private benefits. The close company rules stop this.

A UK-resident company is close if it is under the control of five or fewer participators, or of any number of participators who are directors. A participator is mainly a shareholder, but also a loan creditor or anyone with a right to share in income or capital. Control means holding more than 50% of the share capital, voting power, income rights or assets on a winding up. Rights of associates are added to the participator's own. Associates include spouse or civil partner, parents and remoter ancestors, children and remoter descendants, siblings, business partners and trustees of settlements the person made. Aunts, uncles, cousins and in-laws are not associates.

The close company rules for corporation tax apply only to UK resident companies, so a non-UK resident company is not close. There are two further exclusions. First, a company controlled by a company that is not close is itself not close. The exception is where it would still be close by treating directors who are participators as the controllers. Second, a company is not close if its shares are listed and at least 35% of the voting power is held by the public. This public test also needs the principal members (the five largest holders) to hold no more than 85% of the voting power. Always test for these exclusions.

The main consequences are these. If the company lends money to a participator (or an associate), it pays a charge at 33.75% of the loan, known as s455 tax. It is due 9 months and 1 day after the end of the accounting period in which the loan was made. The charge is repaid, again 9 months and 1 day after the end of the period in which the loan is repaid, released or written off. Benefits to participators who are not employees are treated as distributions. The company gets no deduction and the participator is taxed as if a dividend was received, equal to the cost to the company less anything the participator pays. Where the participator is an employee, the employment income benefit rules apply instead.

A close investment-holding company (CIC) is a close company that is not wholly or mainly a trading company, a property investment company letting to unconnected persons, or a member of a trading group. The key consequence is that it cannot use the small profits rate or marginal relief. All its profits are taxed at the 25% main rate.

Key rules to remember

Close company: control test: Close if UK resident and controlled by ≤ 5 participators, or by participators who are directors; Control means more than 50% of share capital, votes, income or assets on winding up. Add the rights of associates.
Exclusions from close status: Not close if controlled by a non-close company (unless it would be close through director-participators), or listed with ≥ 35% of votes held by the public and principal members holding ≤ 85% of votes; The close company rules for corporation tax apply only to UK resident companies. Both the 35% public holding and the 85% principal members limit must be met.
s455 tax on loan to participator: s455 tax = loan outstanding × 33.75%; The rate equals the higher dividend rate in the tax tables. Due 9 months and 1 day after the end of the accounting period of the loan.
Relief when loan is repaid or written off: Repayment of tax = amount repaid or written off × 33.75%; Repayable 9 months and 1 day after the end of the accounting period in which the repayment or write-off occurs.
Anti-avoidance for repayments: Repayment of £5,000 or more followed by a new loan of £5,000 or more within 30 days may be matched. Repayments over £15,000 with arrangements to re-borrow are matched whatever the gap.; The 30-day matching rule applies where the repayment and the new loan are each £5,000 or more. Separately, the 'bed and breakfasting' rule applies where repayments exceed £15,000 and there are arrangements to re-borrow, with no 30-day limit. Check the facts carefully.
Exception for small loans: No s455 charge if loan ≤ £15,000, borrower is a full-time working director or employee, and owns ≤ 5% of ordinary share capital; Loans made in the ordinary course of a money-lending business are also outside the charge.
Benefit to participator (non-employee): Distribution = cost to company − amount made good; No deduction for the company. Taxed on the participator as dividend income.
CIC corporation tax rate: Taxable total profits × 25%; No small profits rate and no marginal relief.

How to solve Close Companies and Close Investment-Holding Companies questions

Use this order for any question on close companies. Do not skip the definition step, because everything else depends on it.

1List the shareholders, directors and any family links. Add associates' holdings to each participator.
2Test for close status: five or fewer participators with more than 50% control, or director-participators with more than 50%. Check the exclusions: non-UK resident, controlled by a non-close company, listed with 35% public.
3Identify what the company did: lent money, gave a benefit, or both. Decide who the participator or associate is.
4For loans, check the exceptions (small loan to a full-time working employee with 5% or less, money-lending business). Then compute 33.75% of the loan outstanding at the accounting period end.
5Work out the due date: 9 months and 1 day after the accounting period end. Repeat for any repayment or write-off relief, using the period of repayment.
6For benefits, compute cost less amount made good. Say the company gets no deduction and the recipient is taxed as a dividend, or as employment income if an employee.
7If the company has investment activity, decide whether it is a CIC. If so, apply 25% to all profits and state that marginal relief is not available.
8Finish with a clear conclusion and, if asked, advice such as repaying the loan before the due date or paying a dividend or salary instead.

Quickest way: Five-question close company check

When to use it: Use this in Section A when a scenario mentions family shareholders, director loans or private expenses paid by the company.

Is the company UK resident and unlisted? If not, probably not close.
Add the five largest holdings including associates. Over 50%? If yes, close.
If not, add all directors' holdings. Over 50%? If yes, close.
Loan to a participator: loan × 33.75%, due 9 months and 1 day after the period end, unless the small loan exception applies.
Is the company mainly trading or letting to unconnected people? If not, it is a CIC and pays 25% on everything.

Common mistakes in Close Companies and Close Investment-Holding Companies

Counting only the individual's own shares when testing control
Students forget associates' rights are attributed to the participator.
Fix: Always add spouse, parents, children, siblings, partners and trustees' holdings before testing the 50% limit.
Treating aunts, cousins or in-laws as associates
The word 'relative' feels broad.
Fix: Remember the list: spouse or civil partner, ancestors, descendants, siblings, partners, trustees. Nobody else.
Applying the wrong due date for s455 tax
Students use the corporation tax due date or the date of the loan.
Fix: Count 9 months and 1 day from the end of the accounting period in which the loan was made. Repayment relief uses the end of the period of repayment.
Using 25% or 20% instead of 33.75% for s455
Students confuse it with the corporation tax main rate or basic income tax rate.
Fix: The s455 rate matches the higher dividend rate in the tax tables: 33.75%.
Deducting the cost of a participator's benefit in the company's computation
Students treat it as a normal expense.
Fix: A benefit to a non-employee participator is a distribution. Add it back and give no deduction.
Giving a CIC the small profits rate or marginal relief
Students apply the standard rate table without checking the company type.
Fix: State that a CIC pays 25% on all taxable total profits, however small.

Worked examples

Example 1

Alpha Ltd, a close company with a 31 March year end, lends £60,000 to its director Ravi (who owns 30% of the shares) on 1 July 2025. At 31 March 2026 the full loan is outstanding. Ravi repays £24,000 on 20 January 2027 and the rest remains outstanding at 31 March 2027. Calculate the s455 tax, say when it is due, and compute the relief on the repayment.

Show the solution

The loan is to a participator who owns more than 5%, so the small loan exception cannot apply. It is also over £15,000.
s455 tax for the year ended 31 March 2026 = £60,000 × 33.75% = £20,250.
Due date: 9 months and 1 day after 31 March 2026 = 1 January 2027.
The repayment on 20 January 2027 is after the due date, so the £20,250 is paid in full first. The repayment falls in the year ended 31 March 2027. Relief = £24,000 × 33.75% = £8,100.
The £8,100 is repayable 9 months and 1 day after 31 March 2027 = 1 January 2028.
After the repayment, £36,000 of the loan remains outstanding. The £20,250 charge is reduced by the relief, so £20,250 − £8,100 = £12,150 of the original s455 tax stays unrepaid. This equals £36,000 × 33.75%. It is not a new charge.

Answer: s455 tax for the year ended 31 March 2026 is £20,250, due 1 January 2027. Relief of £8,100 is repayable on 1 January 2028. This leaves £12,150 of the original charge unrepaid, relating to the £36,000 still outstanding.

Example 2

Beta Ltd is UK resident and unlisted. Shareholders are Fay 18%, Gus 16%, Hal 14%, Ian 13%, Jo 12% and three others with 9% each. Beta Ltd earns only dividends and bank interest and does not trade or let property. Beta pays £4,000 of private costs for Jo, who is a shareholder but not an employee. Explain whether Beta is close, whether it is a CIC, and the tax effect of the payment. Assume Jo is a higher rate taxpayer with her dividend nil rate band already used.

Show the solution

Five largest holdings: 18% + 16% + 14% + 13% + 12% = 73%. This is more than 50%, so five or fewer participators control the company. Beta is UK resident and unlisted, so it is close.
Beta has only investment income and is not a trading company or a property letting company. So it is a close investment-holding company.
Consequence for Beta: all taxable total profits are taxed at 25%. No small profits rate and no marginal relief.
The £4,000 is a benefit to a participator who is not an employee. It is treated as a distribution.
Beta gets no deduction for the £4,000. Nothing is deducted in computing profits.
Jo is taxed as if she received a £4,000 dividend. Tax = £4,000 × 33.75% = £1,350.

Answer: Beta is a close company and a CIC, so it pays 25% on all profits. The £4,000 is a non-deductible distribution, and Jo pays £1,350 income tax.

Exam tips

Show the control calculation, listing each shareholder and associate. Markers award marks for the working, not just the conclusion.
Quote 33.75% for s455 tax and tie it to the dividend higher rate in the tax tables. Do not mix it up with 25% corporation tax.
State dates in full: 9 months and 1 day after the end of the relevant accounting period. Always say which period.
In planning questions, suggest alternatives such as repaying the loan before the due date, paying a salary or paying a dividend. Warn that a repayment of £5,000 or more followed by a new loan of £5,000 or more within 30 days may be matched. Also warn that where repayments exceed £15,000 and there are arrangements to re-borrow, the matching rule applies whatever the gap.
For professional skills marks, give a clear recommendation and mention the cash flow and compliance consequences for the client.

Practice questions from Corporation tax: the scope of corporation tax, including close companies and investment companies

Close Companies and Close Investment-Holding Companies: frequently asked questions

What is the difference between a close company and a close investment-holding company?

A close company is defined by who controls it. A close investment-holding company is a close company that is not mainly trading, letting to unconnected persons or part of a trading group. The practical difference is that a CIC pays corporation tax at 25% on all its profits.

How do I calculate s455 tax on a loan to a participator?

Take the loan outstanding at the end of the accounting period and multiply by 33.75%. It is due 9 months and 1 day after that period end. If the loan is repaid or written off, the tax is repaid 9 months and 1 day after the end of the period in which that happens.

Who counts as an associate of a participator?

Associates are the participator's spouse or civil partner, parents and remoter ancestors, children and remoter descendants, siblings, business partners and trustees of settlements they made. Their rights are added to the participator's when testing control.

Is a loan to an employee-shareholder always caught by s455?

No. A loan of up to £15,000 to a full-time working director or employee who owns 5% or less of the ordinary share capital is outside the charge. A loan from a money-lending business in the ordinary course is also outside it.