Close company
A close company is one controlled by five or fewer participators, or by its directors. Almost every UK owner-managed limited company is close, which brings the director's loan charge and tighter benefit rules with it.
How it works
Control means the right to more than half the share capital, voting power, distributable income or assets on a winding up. Rights of associates — spouses, children, parents, business partners — are attributed to you, so a company owned equally by a husband and wife is close, as is one owned by four unrelated founders.
Being close is not a penalty in itself; it triggers specific rules. The main one is section 455: a loan to a participator still outstanding nine months and one day after the period end costs the company 35.75%. The second is that benefits provided to a participator who is not an employee or director are treated as distributions. The third is the £300 annual cap on trivial benefits for directors of close companies.
A close investment-holding company is a further category: a close company that does not exist wholly or mainly for trading or for letting property commercially. It is denied the small profits rate and marginal relief, so it pays 25% on all profits.
For most directors the practical point is simple: the money in the company is not yours until it is properly paid out as salary or a lawful dividend, and the close company rules exist to enforce that.
Who this affects
- Almost every owner-managed UK limited company
- Directors running an overdrawn loan account
- Family companies where associates' rights are attributed
- Investment companies at risk of close investment-holding company status
Common mistakes
- Assuming close company rules only apply to single-owner companies
- Treating company money as personal and creating a participator loan
- Overlooking the £300 director cap on trivial benefits
Frequently asked questions
What is a close company?
A UK company controlled by five or fewer participators, or by its directors, counting the rights of associates such as spouses and children.
Is my company a close company?
Almost certainly, if it is owner-managed. Most small UK limited companies meet the test.
What are the main consequences?
The section 455 charge at 35.75% on loans to participators, distribution treatment for certain benefits, and the £300 annual trivial benefits cap for directors.
What is a close investment-holding company?
A close company not existing mainly for trade or commercial property letting. It cannot use the small profits rate or marginal relief and pays 25% throughout.
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Reviewed by Waqas Sagar ACA FCCA FMAAT · Last reviewed 13 September 2026 · Figures for 2026/27 · About our practice
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