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

Zenith Ltd is a UK resident company controlled by four individual shareholders, who are also its directors. It carries on a trade of manufacturing furniture and has no other activities. Which statement about Zenith Ltd's status for corporation tax is correct?

Zenith Ltd is a close company but not a close investment-holding company. Control by four participators makes it close, but because it wholly or mainly carries on a trade it falls outside the close investment-holding company definition and keeps the normal corporation tax rates.

  1. AIt is a close company and a close investment-holding company, because it is controlled by five or fewer participators
  2. BIt is a close company but not a close investment-holding company, because it exists wholly or mainly to carry on a tradeCorrect
  3. CIt is not a close company, because directors who are shareholders cannot count as participators
  4. DIt is not a close company unless it is also a family company

Explanation

A UK resident company controlled by five or fewer participators (or by its directors) is close. A close company is a close investment-holding company (CIC) only if it is not mainly trading or property letting to unconnected persons. Zenith mainly trades, so it is close but not a CIC. Directors are participators, so the third option is wrong.

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