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HMRC internal manual

Company Taxation Manual

ACT: FID: general: election: conditions

ICTA88/S246A (2), (3), (4), (5), (6), (7), (8) & (9)

Before an election for a dividend to be an FID could be effective, the conditions below had to be satisfied.

  1. The dividend had to be paid in cash (and this included payment by cheque or bank transfer).
  2. The recipient had not to be able to choose whether and in what form the dividend was to be paid. (This was an anti-streaming provision, see CTM21260.) See below regarding scrip dividends.
  3. A company had to make an FID election covering all dividends paid on the same terms in respect of more than one share of the same class. In this context ‘on the same terms’ was undefined, but where only one class of shares was involved it was likely that dividends would be identical. (This was an anti-streaming provision, see CTM21260).
  4. A company with more than one class of share capital (excluding fixed-rate preference shares) could not make an FID election unless the company:
  • paid a dividend on the same terms on all its shares,

  • made an election in respect of all the dividends.

‘Fixed-rate preference shares’ were defined in ICTA88/S95 (5) (now in ICTA88/SCH28B 13(6)) as shares which (a) were issued wholly for new consideration, (b) do not carry any right either to conversion into shares or securities of any other description or to the acquisition of any additional shares or securities, and (c) do not carry any right to dividends other than dividends which (i) are of a fixed amount or at a fixed rate per cent of the nominal value of the shares, and (ii) together with any sum paid on redemption, represent no more than a reasonable commercial return on the consideration for which the shares were issued. In this context ‘new consideration’ has the meaning given by ICTA88/S254; and ‘shares’ includes stock.

In this context dividends were ’on the same terms’ if the ratio of the dividend to the nominal value of the share was the same for each share. (Anti-streaming provisions -see CTM21260 for more details).

Scrip dividends

One of the FID conditions was that the recipient must not have been able to choose the form of the dividend. However, a company might have articles allowing for the offer of a scrip alternative to a dividend. Under such an alternative the company allows its shareholders to take extra shares instead of the usual cash payment. The company would still have been able to elect for a particular dividend to be an FID if it did not offer a scrip alternative - or any other alternative - to that particular dividend. The company could still have offered a scrip alternative to any dividend it paid which it did not elect to be an FID.