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HMRC internal manual

Company Taxation Manual

Close companies: general: introduction

A company controlled by a small group of persons may arrange its affairs to enable those persons to avoid income tax. Legislation to prevent this form of avoidance was first introduced as long ago as 1922, but since 1965 the counter measures have been provided by the ‘close company’ provisions. These provisions:

  • define a ‘close’ company,
  • extend the meaning of ‘distributions’ to encompass certain benefits which may be disguised distributions of profit to the shareholders or their families,
  • impose tax in respect of certain loans made to shareholders, etc, which could in practice represent the extraction of profits without the payment of tax by the shareholders, etc
  • impose certain restrictions on close companies which are close investment holding companies (CTM60700 onwards).