Corporation Tax Bill

House of Commons

Session 2009 - 10
Internet Publications
Other Bills before Parliament

Corporation Tax Bill

Corporation Tax Bill
Part 10 — Close companies
Chapter 2 — Basic definitions
221

(9)
The market value of any plant or machinery at any time is to be determined on
the assumption of a disposal by an absolute owner free from—
(a)
all leases (including any agreement or arrangement which is or
includes a plant or machinery lease), and
(b)
other encumbrances.
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Part 10
Close companies
Chapter 1
Overview of Part
438
Overview of Part
10
(1)
Chapter 2 defines “close company” and other expressions used in this Part.
(2)
Chapter 3 imposes a charge to tax in connection with loans or advances by
close companies to participators.
(3)
Chapter 4 contains a power to obtain information in connection with close
companies.
15
(4)
For the meaning of “participator”, see section 454.
Chapter 2
Basic definitions
Meaning of “close company": general
439
“Close company”
20
(1)
For the purposes of the Corporation Tax Acts, a “close company” is a company
in relation to which condition A or B is met.
(2)
Condition A is that the company is under the control—
(a)
of 5 or fewer participators, or
(b)
of participators who are directors.
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(3)
Condition B is that 5 or fewer participators, or participators who are directors,
together possess or are entitled to acquire—
(a)
such rights as would, in the event of the winding up of the company
(“the relevant company”) on the basis set out in section 440, entitle them
to receive the greater part of the assets of the relevant company which
30
would then be available for distribution among the participators, or
(b)
such rights as would, in that event, so entitle them if there were
disregarded any rights which any of them or any other person has as a
loan creditor (in relation to the relevant company or any other
company).
35
(4)
For exceptions to this section, see sections 442 to 447 (companies which are not
to be close companies).

Corporation Tax Bill
Part 10 — Close companies
Chapter 2 — Basic definitions
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(5)
Section 451 (section 450: rights to be attributed etc) applies for the purposes of
subsection (3) and section 440 as it applies for the purposes of section 450.
(6)
See also section 441 (treatment of some persons as participators or directors for
the purposes of subsection (3)).
(7)
For the meaning of—
5
(a)
“control”, see sections 450 and 451,
(b)
“director”, see section 452, and
(c)
“loan creditor”, see section 453.
440
Basis of winding up under section 439(3)
(1)
This section applies for the purposes of section 439(3).
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(2)
In the notional winding up of the relevant company, the part of the assets
available for distribution among the participators which any person is entitled
to receive is the aggregate of—
(a)
any part of those assets which the person would be entitled to receive
in the event of the winding up of the relevant company, and
15
(b)
any part of those assets which the person would be entitled to receive
if—
(i)
any other company which is a participator in the relevant
company and is entitled to receive any assets in the notional
winding up were also wound up on the basis set out in this
20
section, and
(ii)
the part of the assets of the relevant company to which the other
company is entitled were distributed among the participators in
the other company in proportion to their respective entitlement
to the assets of the other company available for distribution
25
among the participators.
(3)
In the application of subsection (2)—
(a)
to the notional winding up of the other company mentioned in
paragraph (b) of that subsection, and
(b)
to any further notional winding up required by that paragraph (or by
30
any further application of that paragraph),

references to “the relevant company” are to be read as references to the
company concerned.
441
Treatment of some persons as participators or directors for the purposes of
section 439(3)
35
(1)
The following provisions apply for the purpose of determining whether under
subsection (3) of section 439 five or fewer participators, or participators who
are directors, together possess or are entitled to acquire rights such as are
mentioned in paragraph (a) or (b) of that subsection.
(2)
A person is to be treated as a participator in or director of the relevant company
40
if the person is a participator in or director of any other company which would
be entitled to receive assets in the notional winding up of the relevant company
on the basis set out in section 440.

Corporation Tax Bill
Part 10 — Close companies
Chapter 2 — Basic definitions
223

(3)
No account is to be taken of a participator which is a company unless the
company possesses or is entitled to acquire the rights in a fiduciary or
representative capacity.
(4)
But subsection (3) does not apply for the purposes of section 440.
Companies which are not to be close companies
5
442
Particular types of company
A company is not to be treated as a close company if—
(a)
it is non-UK resident,
(b)
it is a registered industrial and provident society, or
(c)
it is a building society.
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443
Companies controlled by or on behalf of Crown
(1)
A company is not to be treated as a close company as a result of section 439(2)
if it is controlled by or on behalf of the Crown.
(2)
A company is “controlled by or on behalf of the Crown”, for the purposes of
this section, if it is under the control of the Crown or of persons acting on behalf
15
of the Crown, independently of any other person.
(3)
But a company is not controlled by or on behalf of the Crown, for the purposes
of this section, if it is a close company as a result of being under the control of
persons acting independently of the Crown.
444
Companies involved with non-close companies
20
(1)
A company is not to be treated as a close company if condition A or B is met.
(2)
Condition A is that the company—
(a)
is controlled by one or more companies none of which is a close
company, and
(b)
cannot be treated as a close company except by taking, as one of the 5
25
or fewer participators requisite for its being so treated, a company
which is not a close company.
(3)
Condition B is that the company—
(a)
would not be a close company were it not for paragraph (a) of section
439(3) or paragraph (d) of section 450(3), and
30
(b)
would not be a close company if the references in those paragraphs to
participators did not include loan creditors which are companies other
than close companies.
(4)
References in subsections (2) and (3) to a close company include a company
which, if UK resident, would be a close company.
35
445
Section 444: registered pension schemes
(1)
If shares in a company (“C”) are held on trust for a registered pension scheme,
the persons holding the shares are to be treated, for the purposes of section
444(2) and (3)—
(a)
as the beneficial owners of the shares, and
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Corporation Tax Bill
Part 10 — Close companies
Chapter 2 — Basic definitions
224

(b)
in that capacity, as a company which is not a close company.
(2)
But subsection (1) does not apply if the scheme is established wholly or mainly
for the benefit of—
(a)
directors, employees, past directors or past employees of a company
within subsection (3), or
5
(b)
dependants of an individual within paragraph (a).
(3)
The companies within this subsection are—
(a)
C,
(b)
an associated company of C,
(c)
a company which is under the control of—
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(i)
a director of C,
(ii)
an associate of a director of C, or
(iii)
two or more persons each of whom is such a director or
associate, and
(d)
a close company.
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(4)
For the meaning of—
(a)
“associate”, see section 448, and
(b)
“associated company”, see section 449.
446
Particular types of quoted company
(1)
A company is not to be treated as a close company at a particular time if—
20
(a)
shares in the company carrying at least 35% of the voting power in the
company have been allotted unconditionally to, or acquired
unconditionally by, and are at that time beneficially held by, the public,
and
(b)
any such shares have within the preceding 12 months been the subject
25
of dealings on a recognised stock exchange, and the shares have within
those 12 months been listed on such an exchange.
(2)
But subsection (1) does not apply to a company at any time when the total
percentage of the voting power in the company possessed by all of the
company’s principal members exceeds 85%.
30
(3)
For the purposes of this section, a person is a principal member of a company
if the person possesses a percentage of the voting power in the company of
more than 5% (but see subsection (4)).
(4)
If there are more than 5 persons within subsection (3), a person is a principal
member of the company only if—
35
(a)
the person is one of the 5 persons who possess the greatest percentages,
or
(b)
in a case where there are no such 5 persons because two or more
persons possess equal percentages of the voting power in the company,
the person is one of the 6 or more persons (including those two or more
40
who possess equal percentages) who possess the greatest percentages.
(5)
In determining for the purposes of this section the voting power which a
person possesses, there is to be attributed to the person any voting power
which would be attributed to the person if section 451(3) to (6) applied for the
purposes of this section.
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Corporation Tax Bill
Part 10 — Close companies
Chapter 2 — Basic definitions
225

(6)
In this section “shares”—
(a)
include stock, but
(b)
do not include shares entitled to a fixed rate of dividend, whether with
or without a further right to participate in profits.
(7)
See also section 447 (section 446: meaning of “shares held beneficially by the
5
public” etc).
447
Section 446: meaning of “shares beneficially held by the public” etc
(1)
For the purposes of section 446, shares in a company (C) are beneficially held
by the public if they are—
(a)
beneficially held by a UK resident company which is not a close
10
company, or by a non-UK resident company which would not be a
close company if it were UK resident,
(b)
held on trust for a registered pension scheme, or
(c)
not comprised in a principal member’s holding.
(2)
But shares are not beneficially held by the public if they are held—
15
(a)
by a director of C,
(b)
by an associate of such a director,
(c)
by a company which is under the control of one or more persons each
of whom is such a director or associate,
(d)
by an associated company of C, or
20
(e)
as part of a fund the capital or income of which is applicable or applied
wholly or mainly for the benefit of any of individuals within subsection
(3).
(3)
Those individuals are—
(a)
employees, directors, past employees or past directors of C or of any
25
company within subsection (2)(c) or (d), and
(b)
dependants of any individuals within paragraph (a).
(4)
The reference in section 446(1) to shares which have been allotted
unconditionally to, or acquired unconditionally by, the public is to be read in
accordance with subsections (1) to (3).
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(5)
For the purposes of subsection (1), a principal member’s holding consists of the
shares which carry the voting power possessed by him.
(6)
The reference in subsection (2) to shares held by any person includes shares the
rights or powers attached to which would be attributed to the person if section
451(3) applied for the purposes of that subsection.
35
(7)
Subsections (3) to (5) of section 446 (meaning of “principal member” and
determination of voting power possessed) apply for the purposes of this
section as they apply for the purposes of that section.
(8)
In this section, “shares” includes stock.
Meaning of other expressions in this Part
40
448
“Associate”
(1)
In this Part “associate”, in relation to a person (“P”), means—

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(a)
any relative or partner of P,
(b)
the trustees of any settlement in relation to which P is a settlor,
(c)
the trustees of any settlement in relation to which any relative of P
(living or dead) is or was a settlor,
(d)
if P has an interest in any shares or obligations of a company which are
5
subject to any trust, the trustees of any settlement concerned,
(e)
if P—
(i)
is a company, and
(ii)
has an interest in any shares or obligations of a company which
are subject to any trust,
10

any other company which has an interest in those shares or obligations,
(f)
if P has an interest in any shares or obligations of a company which are
part of the estate of a deceased person, the personal representatives of
the deceased, or
(g)
if P—
15
(i)
is a company, and
(ii)
has an interest in any shares or obligations of a company which
are part of the estate of a deceased person,

any other company which has an interest in those shares or obligations.
(2)
In this section, “relative” means—
20
(a)
a spouse or civil partner,
(b)
a parent or remoter forebear,
(c)
a child or remoter issue, or
(d)
a brother or sister.
449
“Associated company”
25
For the purposes of this Part, a company is another’s “associated company” at
a particular time if, at that time or at any other time within the preceding 12
months—
(a)
one of them has control of the other, or
(b)
both are under the control of the same person or persons.
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450
“Control”
(1)
This section applies for the purpose of this Part.
(2)
A person (“P”) is treated as having control of a company (“C”) if P—
(a)
exercises,
(b)
is able to exercise, or
35
(c)
is entitled to acquire,

direct or indirect control over C’s affairs.
(3)
In particular, P is treated as having control of C if P possesses or is entitled to
acquire—
(a)
the greater part of the share capital or issued share capital of C,
40
(b)
the greater part of the voting power in C,
(c)
so much of the issued share capital of C as would, on the assumption
that the whole of the income of C were distributed among the
participators, entitle P to receive the greater part of the amount so
distributed, or
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Corporation Tax Bill
Part 10 — Close companies
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227

(d)
such rights as would entitle P, in the event of the winding up of C or in
any other circumstances, to receive the greater part of the assets of C
which would then be available for distribution among the
participators.
(4)
Any rights that P or any other person has as a loan creditor are to be
5
disregarded for the purposes of the assumption in subsection (3)(c).
(5)
If two or more persons together satisfy any of the conditions in subsections (2)
and (3), they are treated as having control of C.
(6)
See also section 451 (section 450: rights to be attributed etc).
451
Section 450: rights to be attributed etc
10
(1)
This section applies for the purposes of section 450.
(2)
A person is treated as entitled to acquire anything which the person—
(a)
is entitled to acquire at a future date, or
(b)
will at a future date be entitled to acquire.
(3)
If a person—
15
(a)
possesses any rights or powers on behalf of another person (A), or
(b)
may be required to exercise any rights or powers on A’s direction or
behalf,

those rights or powers are to be attributed to A.
(4)
There may also be attributed to a person all the rights and powers—
20
(a)
of any company of which the person has, or the person and associates
of the person have, control,
(b)
of any two or more companies within paragraph (a),
(c)
of any associate of the person, or
(d)
of any two or more associates of the person.
25
(5)
The rights and powers which may be attributed under subsection (4)—
(a)
include those attributed to a company or associate under subsection (3),
but
(b)
do not include those attributed to an associate under subsection (4).
(6)
Such attributions are to be made under subsection (4) as will result in a
30
company being treated as under the control of 5 or fewer participators if it can
be so treated.
452
“Director”
(1)
In this Part, “director”, in relation to a company, includes—
(a)
a person occupying the position of director of the company, by
35
whatever name called,
(b)
a person in accordance with whose directions or instructions the
directors of the company are accustomed to act, and
(c)
a person within subsection (2).
(2)
A person (P) is within this subsection if P—
40
(a)
is a manager of the company or otherwise concerned in the
management of the company’s trade or business, and