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HMRC internal manual

Company Taxation Manual

From
HM Revenue & Customs
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Close companies: tests: control - by another company

CTA2010/S444 (1) to (3) (formerly ICTA88/S414 (5)) and CTA2010/S445 (1) to (3) (formerly ICTA88/S414 (7))

A company is not to be treated as a close company where:

  • the company is controlled (under any of the control tests in CTM60210 to CTM60250) by an open company, or by two or more open companies, and
  • it cannot be treated as a close company (under the control tests in CTM60210 to CTM60250 or the winding-up test in CTM60320) except by including an open company in the group of five or fewer participators.

A company is also not to be treated as a close company where:

  • the company can only be shown to be close under the control test in CTA2010/S450 (3) (d) (formerly ICTA88/S416 (2)(c)) (entitlement to receive the greater part of the assets in a winding-up, etc, see CTM60230),

          and

  • the company would not be close under the control test if the reference to ‘participators’ in Section 450 (3) excluded loan creditors who are open companies.

Where, in considering the above, you have to take into account a company not resident in the UK, the non-resident company is to be treated as a close company if, were it resident in the UK, it would be such a company.

Shares held by trustees are deemed to be in the beneficial ownership of a company, which is not close provided that both the following conditions are satisfied.

  • The shares in question are held in trust for an registered pension scheme as defined in FA2004/S150 (2).
  • The fund or scheme is not established wholly or mainly for the benefit of persons who are, or are dependants of, employees or directors or past employees or directors of:
    • the company being tested, or
    • any company associated with it, or
    • a company controlled by directors and/or associates of directors of the company being tested, or
    • a close company.

 

The broad effect of the above conditions is that the fund or scheme must be one established for the benefit of employees, etc, of an unrelated company which is not close. A joint fund for the benefit of employees of two or more companies is not disqualified if the majority of the beneficiaries are or were employees of qualifying companies or are dependants of such employees.