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HMRC internal manual

Employee Tax Advantaged Share Scheme User Manual

Schedule 4 Company Share Option Plan (CSOP): Shares to be used: Ordinary share capital

“Ordinary Share Capital” is defined in Section 989 ITA 2007. It means all of the company’s issued share capital other than capital the holders of which have a right to a dividend at a fixed rate but have no other right to share in the profits of the company.

It does not matter whether or not the class of shares in question is called “ordinary”. For example, shares described as “preference shares” can be ordinary share capital if the rights they confer satisfy the definition in Section 989.

ESSU should not make general comments about the interpretation of Section 989. Whether shares are ordinary share capital can affect a number of aspects of company taxation.

The following may be accepted as ordinary share capital:

  • shares with a right to “tiered” dividends e.g. 8% for year 1, 9% for year 2, 10% thereafter. This is acceptable on the basis that “tiered” rates do not amount to a fixed rate. Support for this interpretation can be derived from the use of the singular “a fixed rate” in Section 989 and from the meaning assigned there to “preference dividend” which contrasts fixed rates with variable rates,
  • shares which have a right to the greater of a specified sum or the dividend paid in respect of another class of shares,
  • shares with no dividend rights (we do not contend that they carry the right to a fixed dividend of 0%).