Definition
A close company is, broadly, a UK company controlled by five or fewer shareholders (called participators), or by any number of participators who are also directors. Most owner-managed limited companies are close companies. The status comes from Corporation Tax law and matters mainly because it brings the section 455 tax charge on loans to shareholders.
How the test works
Control broadly means holding more than half of the shares or voting power. A company is also close if more than half of its assets would go to five or fewer participators, or to participator-directors, on a winding up.
What changes for a close company
- Loans to participators: if a director-shareholder still owes the company money 9 months and 1 day after the year end, the company pays section 455 tax on the balance, at 35.75% for loans made on or after 6 April 2026. The tax is reclaimable once the loan is repaid, written off or released.
- Benefits: some benefits the company provides to participators can be taxed as distributions.
Mia is the sole director and shareholder of a company with a 31 March 2027 year end. She borrows £15,000 in June 2026 and still owes it on 1 January 2028, so the company owes s455 tax of £5,362.50.
In practice, most close company questions are about director’s loan accounts and s455, which SmartFiling covers in a separate guide.
Related questions
- What is a director's loan account? A record of money a director takes from or pays into the company that is not salary, dividends or expense repayments.
- Is my company a close company? If five or fewer people control it, or its shareholders are its directors, almost certainly.
Related terms
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Director's loan account
A director's loan account (DLA) is a limited company's record of money moving between a director and the company other than salary, dividends or repaid expenses.
Read definition -
Section 455 tax
Section 455 tax (s455) is a temporary charge, paid like Corporation Tax, on close company loans to participators, usually director-shareholders…
Read definition -
Corporation Tax
Corporation Tax is the tax UK limited companies pay to HM Revenue and Customs (HMRC) on their taxable profits.
Read definition
