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Special rules apply to tax benefits provided by a close company to a participator. The provisions are aimed at preventing close companies paying expenses of its participators in circumstances where the participator does not pay tax on the receipt of the benefit but the company is able to deduct the expense in calculating its profits for corporation tax purposes.

The general rule treats certain benefits paid to participators or their associates as distributions so that the company is not entitled to a deduction for corporation tax purposes and the recipient is taxed as if they had received a distribution, this is discussed below.

In addition, if the general rule does not apply but any kind of value has been provided to a participator or an associate through tax avoidance arrangements, the targeted anti-avoidance rule may well apply instead.

For the meaning of ‘participator’ and ‘associate’, see the Definition of a close company guidance note.