Advanced Taxation (UK) · Corporation tax: the use of exemptions and reliefs in deferring and minimising corporation tax liabilities

Close Companies, Anti-Avoidance and Related Tax Reliefs for ACCA ATX

Updated 11 October 2026

A close company is controlled by five or fewer participators, or by any number of participators who are directors. Its main traps are s455 tax on loans to participators, benefits treated as distributions, and anti-avoidance rules such as transactions in securities and the GAAR. Identify close status first, then apply the rule the scenario triggers.

Understand Close Companies, Anti-Avoidance and Related Tax Reliefs

A close company is a UK resident company that is under the control of five or fewer participators, or of any number of participators who are directors. Control means more than 50% of the share capital, voting rights, income rights or assets on a winding up. A participator is broadly anyone with a share or loan interest in the company. Shares held by associates (such as relatives and business partners) count towards the test. When you test control, add together the holdings of the five largest participators and their associates.

A company is not close if at least 35% of its voting power is held by the public, its shares are listed or dealt in on a recognised stock exchange, and its principal members (the five largest holders of votes) hold no more than 85% of the voting power. A listing alone is not enough. That is the main contrast with a non-close company, which is usually a widely held or listed business. Most owner-managed companies in ATX questions are close.

Why does close status matter? Owners can take value out of the company in ways that avoid income tax. Close company rules stop this. A loan to a participator is the main example. The company must pay s455 tax on the loan if it is still outstanding nine months and one day after the end of the accounting period. The s455 rate is not shown in the ACCA text supplied for this page, so take it from the tax tables or the question in your exam. The tax is repayable when the loan is repaid, released or written off. The company also gets no deduction for a written-off loan. The amount written off is taxed on the participator. If the participator is not an employee, it is taxed as a distribution, using the dividend rates and gross-up given in the exam. If the participator is an employee, it is taxed as employment income. A benefit given to a participator who is not an employee is treated as a distribution. If the participator is an employee, the benefit is taxed as employment income instead.

A close investment-holding company is a close company that does not mainly carry on a trade or certain other qualifying activities. It pays corporation tax at the main rate of 25% on all its profits and gets no small profits rate or marginal relief.

Anti-avoidance sits around these rules. Transactions in securities rules let HMRC counteract an income tax advantage from certain share transactions, and clearance can be sought in advance. The General Anti-Abuse Rule (GAAR) counteracts tax advantages from abusive arrangements, judged by whether the arrangement could not reasonably be regarded as a reasonable course of action. Planning often has side effects on stamp duty (0.5% on share purchases), VAT and inheritance tax, so check each.

Key rules to remember

Close company test: Close if controlled by ≤ 5 participators (with associates), or by any number of participators who are directors; Control means more than 50% of shares, votes, income rights or assets on a winding up. Count associates.
s455 tax on loans to participators: s455 tax = s455 rate × loan outstanding at the due date; Take the s455 rate from the tax tables or the question. It is not in the ACCA text supplied for this page. Due 9 months and 1 day after the end of the accounting period in which the loan was made.
Repayment of s455 tax: Repayable 9 months and 1 day after the end of the accounting period in which the loan is repaid, released or written off; Claim the relief. It is not automatic.
Close investment-holding company rate: Corporation tax at 25% (main rate) on all profits; No small profits rate (19%) and no marginal relief.
Stamp duty on shares: Stamp duty = 0.5% × consideration, rounded up to the nearest £5; Paid by the purchaser. The 0.5% rate is given in ACCA's tables. The rounding up to the nearest £5 is an additional convention that is not in the table, so learn it and apply it unless the question says otherwise.
Beneficial loan to employee: Taxable benefit = average balance × official rate (3.75%) less interest paid; Applies if the participator is also an employee and the loan is above the exemption threshold. The official rate is in ACCA's tables. The threshold (often £10,000) is not shown in the tables supplied here, so confirm it or use the figure given in the question.

How to solve Close Companies, Anti-Avoidance and Related Tax Reliefs questions

Use this order for any close company or anti-avoidance requirement. It keeps your answer tied to the scenario and earns professional skills marks.

1Read the requirement and note the roles you are advising (company, shareholder, director, or all three).
2Test close status: count participators, their associates and directors, and check control above 50%. Say clearly whether the company is close.
3If the company is close, check the type of company. A close investment-holding company pays 25% on all profits and loses the small profits rate.
4Identify the transaction: loan, benefit, write-off, share buyback, share sale or extraction of profit.
5Apply the rule with the date. For loans, find the amount outstanding at 9 months and 1 day after the accounting period end, then compute s455 tax using the s455 rate given in the exam tax tables or question.
6Add the other taxes: for a loan written off, a distribution for a non-employee participator (use the dividend rates and gross-up given in the exam) or employment income for an employee; income tax on benefits; stamp duty on shares at 0.5%; VAT and inheritance tax effects.
7Assess anti-avoidance risk: transactions in securities, GAAR and disclosure. Separate acceptable planning from abusive arrangements.
8Conclude with a clear recommendation, any deadline, and a short ethical or risk comment.

Quickest way: Close company loan check in four lines

When to use it: Use this when a question gives a loan to a shareholder and asks for the tax cost or the best way to deal with it.

Close company? Yes if five or fewer controlling participators, or directors in control.
Date: add 9 months and 1 day to the accounting period end, and note repayments before that date.
Amount: loan outstanding at that date × the s455 rate given in your exam, rounded to the nearest £.
Relief: repayments later give s455 repayment, claimable 9 months and 1 day after the end of the period of repayment. A write-off is taxed on the participator as a distribution (non-employee, using the rates given in the exam) or as employment income (employee).

Common mistakes in Close Companies, Anti-Avoidance and Related Tax Reliefs

Treating a company as close without counting associates, or missing the director-control test.
Students count only the named shareholders and stop at 50%.
Fix: Add associates' shares, then test both limbs: five or fewer participators, or directors in control.
Charging s455 tax on loans repaid before the due date.
Students tax the original loan instead of the balance outstanding when the tax is due.
Fix: Deduct repayments made on or before the date nine months and one day after the period end.
Forgetting the s455 repayment relief or giving it at the wrong time.
Students think the tax is a permanent cost.
Fix: State that the tax is repaid 9 months and 1 day after the end of the period of repayment, and that it must be claimed.
Giving a corporation tax deduction for a loan written off.
Students link the write-off to a business expense.
Fix: State that there is no deduction for the company. The participator is taxed on the amount written off: as a distribution, using the dividend rates and gross-up given in the exam, if not an employee, or as employment income if an employee.
Applying the 19% small profits rate to a close investment-holding company.
Students treat all close companies the same.
Fix: A close investment-holding company pays 25% on all profits. A normal trading close company can still use the small profits rate and marginal relief.
Calling a scheme either evasion or acceptable planning without reasoning.
Students memorise labels instead of applying them to the scenario.
Fix: Describe what the arrangement does, why it might be abusive under the GAAR, and what the consequences and disclosure obligations are.

Worked examples

Example 1

Blue Ltd is a close trading company with a year end of 31 March 2026. On 1 July 2025 it lent £60,000 to Raj, a director who owns 40% of the shares and works full time. Raj repaid £25,000 on 31 December 2026 and the balance on 30 June 2027. The question states that the s455 rate is 33.75%. Calculate the s455 tax due for the year to 31 March 2026 and say when any repayment is due.

Show the solution

Raj is a director who holds 40% of the shares, so he is a participator. The loan from a close company to a participator falls within s455.
Due date is 9 months and 1 day after 31 March 2026, which is 1 January 2027.
The £25,000 repayment on 31 December 2026 is before the due date, so the amount outstanding at 1 January 2027 is £60,000 − £25,000 = £35,000.
The s455 rate is not in the ACCA text supplied for this page. In the exam, take it from the tax tables or the question. Here the question gives 33.75%, so s455 tax = £35,000 × 33.75% = £11,812.50, which is £11,813 to the nearest £.
The £35,000 balance was repaid on 30 June 2027, in the accounting period to 31 March 2028.
Repayment relief is due 9 months and 1 day after 31 March 2028, which is 1 January 2029. The company must claim it.
Note: Raj is a director who works full time, so he is an employee. The beneficial loan rules may also apply to him if the loan is above the exemption threshold. That threshold (often £10,000) is not in the tables supplied here, so confirm it or use the figure in the question. The benefit is worked out using the official rate of 3.75% less any interest he pays. This is a separate income tax point and does not change the s455 figure.

Answer: With the s455 rate of 33.75% given in the question, s455 tax is £11,813, due on 1 January 2027. It is repayable on 1 January 2029, once the company claims relief for the repayment made in the year to 31 March 2028. Raj may also have a beneficial loan benefit as an employee.

Example 2

Green Ltd, a close company, buys back 40,000 of its own shares from a shareholder for £3.20 each. Separately, Mina buys shares in an unrelated company for £12,345. Calculate the stamp duty on each transaction using the 0.5% rate in ACCA's tax tables and the usual rounding up to the nearest £5.

Show the solution

Stamp duty on shares is 0.5% of the consideration, paid by the purchaser. The 0.5% rate is ACCA's rate from the tax tables.
Green Ltd is the purchaser in the buyback. Consideration is 40,000 × £3.20 = £128,000.
Stamp duty is £128,000 × 0.5% = £640, which is already a multiple of £5.
For Mina, 0.5% × £12,345 = £61.725.
Rounding up to the nearest £5 is an additional convention that is not shown in the ACCA table. Applying it gives £65.
For the selling shareholder in the buyback, the payment may be taxed as a distribution unless the conditions for capital treatment are met. This does not change the stamp duty.

Answer: Green Ltd pays stamp duty of £640 on the buyback, and Mina pays £65 on her share purchase. The £65 uses the £5 rounding convention on top of ACCA's 0.5% rate. The seller in the buyback may be taxed on a distribution rather than a capital gain unless the conditions for capital treatment are met.

Exam tips

Always state whether the company is close and why. The marks usually start there.
Write the s455 due date out in full, and show the balance outstanding on that date before you multiply by the s455 rate.
Take the s455 rate and the dividend rates from the tax tables or the question in your exam. Do not rely on memory for them.
In planning questions, mention stamp duty, VAT and inheritance tax effects briefly, and add a comment on the GAAR or transactions in securities risk.
Use the requirement's role (adviser, tax manager). Give a clear recommendation, a reasoned comparison of options and an ethical comment to earn professional skills marks.

Practice questions from Corporation tax: the use of exemptions and reliefs in deferring and minimising corporation tax liabilities

Close Companies, Anti-Avoidance and Related Tax Reliefs: frequently asked questions

What is the difference between a close company and a non-close company?

A close company is controlled by five or fewer participators, or by directors who are participators. A non-close company is widely held, such as a listed company with substantial public shareholding. Close companies face extra rules on loans to participators and benefits.

When is s455 tax due and can it be recovered?

s455 tax is due 9 months and 1 day after the end of the accounting period in which the loan was made. The tax is repaid, on claim, 9 months and 1 day after the end of the period in which the loan is repaid, released or written off. You must claim it.

Who pays stamp duty on a company share purchase?

The purchaser pays stamp duty on shares at 0.5% of the consideration, rounded up to the nearest £5. If a company buys back its own shares, the company is the purchaser and pays it. The selling shareholder may be taxed on a distribution rather than a capital disposal unless the conditions for capital treatment are met.

How is the GAAR relevant to corporation tax planning?

The GAAR lets HMRC counteract tax advantages from abusive arrangements, which are those that cannot reasonably be regarded as a reasonable course of action. In an exam, explain why a scheme may be abusive, note the possible adjustment, and recommend more commercial alternatives.