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HMRC internal manual

Employment Income Manual

Employee Ownership Trusts: qualifying bonus payments: the indirect employee-ownership requirement: the controlling interest requirement

Section 312E ITEPA 2003

This section sets out what is known as the indirect employee-ownership requirement. This is in fact an overarching heading for 2 separate subsidiary requirements; the controlling interest requirement and the all-employee benefit requirement. For details of the all-employee benefit requirement, see EIM03057.

To meet the controlling interest requirement, a settlement of the shares of the company into a trust is required. The provisions of section 236M of the Taxation of Capital Gains Act 1992 (TCGA) are imported into section 312E to give the conditions necessary to meet the controlling interest. These conditions are given in terms of the settlement which meets the controlling interest requirement if:

  • the trustees hold more than 50% of the ordinary share capital of the company
  • they have voting powers in relation to all matters affecting the company and those powers would result in a majority vote capable of being exercised
  • they are entitled to more than 50% of the profits which are available to be distributed to equity holders
  • they would be entitled to more than 50% of the assets of the company which are available to equity holders if it were wound up
  • no provision exists in relation to the company’s constitution, management, shares or securities to remove any of the above conditions without recourse to the trustees

These provisions have to apply to the company directly. Where the company is a member of a trading group but is not the principal company, the provisions have to be met by the principal.