Schedule 9
Finance Bill
6:30 pm
Mark Hoban (Shadow Minister, Treasury; Fareham, Conservative)
My amendments are dry and technical. They define “ordinary share capital” more closely by reference to another term in the Bill, “relevant preference shares”. The objective is to ensure that group relief is available when certain preference shares are issued. The holders of fixed rate preference shares are not usually treated as equity holders. Schedule 9 changes that, so holders of relevant preference shares will not be treated as equity holders. It is important because those determinations affect the entitlement to group relief from related companies for trading losses.
Amendments 23 to 26 tidy up the definition of “ordinary share capital”. The test of a grouping for many tax purposes involves two parts: an ordinary share capital test and an economic ownership test based on the provisions of schedule 18 of the Income and Corporation Taxes Act 1988. Ordinary share capital is defined in section 832(1) of the 1988 Act as
“all the issued share capital (by whatever name called) of the company, 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”.
According to the 1988 Act, if the holder does not have a fixed-rate preference share, they must have an ordinary share. The challenge arises because the rate on the preference share may vary. Although the definition of ordinary share capital includes an exclusion for shares that carry a dividend at a fixed rate and is similar to the definition of fixed rate preference shares in schedule 18 of the 1988 Act, the two are not the same. As a result, it is possible for a share to be treated as part of the ordinary share capital and as a fixed rate preference share for the purposes of schedule 18. The concern expressed to me is that the introduction of the definition of “relevant preference shares” would increase the circumstances that could give rise to that confusion. Amendments 23 to 26 bring the two definitions into line, so that an ordinary share is defined as something that is not a relevant preference share.
The Government beat us to the punch with amendments 10 to 12, in that we wanted to table amendments with a similar effect. We welcome the Govt amendments.