The CIOT has, with HMRC's permission, published a document setting out HMRC's initial view on whether particular rights attached to shares mean that the shares would or would not be 'ordinary share capital' for the purposes of ER (among other things).

One of the conditions for ER to be claimed is that the relevant individual holds not less than 5% of the company's 'ordinary share capital'. Ordinary shares are all shares other than shares which, broadly, carry a right only to a dividend at a fixed rate and no other right to share in the profits of the company. The question of whether shares are or are not ordinary share capital for ER purposes has been considered twice by the courts in recent years in relation to shares with no right to receive a dividend. In those two cases, the FTT decided in one case that the shares were ordinary share capital and in another that they were not. This discrepancy has since been clarified by the Upper Tribunal, which decided that shares with no dividend rights are ordinary share capital on the basis that a right to no dividend is not a right to a dividend at a 'fixed rate' of zero.

The list made available by the CIOT sets out HMRC's current view on whether shares carrying particular rights are or are not ordinary share capital. Since this distinction can be critical for numerous tax purposes, people should think very carefully about the rights attaching to shares when it is important whether they are or are not ordinary share capital. For instance, according to HMRC, a share with a right to a dividend at a fixed rate that is cumulative is not ordinary share capital but a share with a right to a dividend at a fixed rate that is not cumulative is. Particular care should be taken in this regard where share rights are to be changed or new shares are to be issued with the intention that they are, or are not, ordinary share capital.