Close companies

Expenses for participators and associates

Certain benefits and expense payments from a close company to its participators or their associates are treated as distributions. This includes:

• the provision of accommodation
• entertainment
• domestic and other services.

Other benefits or facilities, of whatever nature, are included.

The company cannot take a deduction for the distribution when computing its Corporation Tax (CT) liability. The company may need to deduct Dividend Withholding Tax (DWT) from the distribution.

A participator in a company which controls another company is also treated as a participator in that other company.

Treatment as a distribution does not apply if:

• the participator reimburses the company for the full amount of the expense
• the benefit is for a director or an employee who is already taxed on the amount as a benefit in kind (BIK) under Schedule E 
• the company provides a pension, lump sum, or other death or retirement benefit, to the spouse, children or dependants of an employee or director
• or
• the benefit relates to the transfer of assets or liabilities between two resident companies. This is provided that:
  • one company is a subsidiary of the other
  • or
  • they are both subsidiaries of a third company.

Next: Interest paid to directors and associates