Alphabet Shares

Where an individual owns shares in an OMB, when deciding how to extract profits it is generally more tax efficient to take a dividend rather than pay salary.

For various reasons shareholders may want to take different dividends and where there is only one class of shares this can be achieved by the use of dividend waivers. Such arrangements can be cumbersome and are dependent on there being sufficient reserves to cover the full dividend including the waived amount. In such circumstances, the use of A and B shares to allow for different dividends to be paid, should be considered.

HMRC may review the arrangements to ensure the planning and implementation is effective and that the employment related securities provisions does not come into play. The arrangements are likely to be effective where the following can be put in place:

  • Both A and B shares have the same rights including rights to vote and a share in net assets following a winding up of the company;
  • Reasonable salaries should be paid to employees in line with the national minimum wage but preferably commensurate to their duties;
  • In husband and wife cases, the dividend should be paid to the spouse without an obligation for it to be returned to the main shareholder.

We are experts in avoiding the obstacles that may arise ensuring the planning and implementation for these arrangements is effective. Please contact Martin Mann on 020 7182 4745 or your normal Gabelle contact for further information.