Autumn Statement 2014: B share schemes

Posted by RM2 at 15:51 on 6 Dec 2014


George Osborne has it in for tax avoiders, and specifically noted “Special Purpose Share Schemes” in his Autumn Statement on 3rd December.

At RM2, we have not established any schemes of this nature.

So what is a Special Purpose Share Scheme – and do you have one?

What is a B Share Scheme?

A Special Purpose Share Scheme is also sometimes known as a “B Share Scheme”. The scheme is usually set up by companies who want to return cash to existing shareholders. Although the actual structure will vary, typically a new class of shares (often redeemable shares, often with limited or no voting rights) is issued to shareholders, pro rata. After that, the key point of a B Share Scheme is that shareholders can choose what form their “dividend” will take. They might receive a dividend – with the associated tax credits (after which the shares will usually convert into a different class of shares with limited or no rights). In other cases, the shares are redeemed, or in some cases bought back by the company and cancelled, meaning the gains are subject to capital gains tax.

Mr Osborne’s view is that schemes such as these are structured with one “special purpose” in mind, which is the avoidance of tax that would normally be paid on the simple payment of a dividend. In the future, any gains received by shareholders under a B Share Scheme will be taxed simply as dividend income.

Do I have a B Share Scheme?

There is no need to panic if your company’s share capital includes B Shares (or any other different class of shares), and generally speaking you shouldn’t worry if you are operating a share scheme for your employees which uses a different class of shares. It’s perfectly acceptable to structure your share capital using different classes of shares which might have different rights, or to differentiate between the owners’ original shares and employee shares under a share scheme.

Of course there are sensible limits to the number of different share classes you should use. For example, HMRC has long frowned upon “alphabet shares” under which you can declare a different level of dividend for each shareholder, each of whom holds a different share class.

We don’t anticipate that an employees’ share scheme, such as an EMI, being caught under this avoidance legislation.