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  • Purchase of own shares – HMRC update on single contract with multiple completion
Article:

Purchase of own shares – HMRC update on single contract with multiple completion

09 March 2022

HMRC has notified the Chartered Institute of Taxation of its revised position on single contracts with multiple completion in relation to company purchases of own shares.

HMRC refers to s1062(2) CTA 2010, which sets out when a person is treated as connected with a company immediately after a purchase of own shares. In relation to whether a person directly or indirectly possesses more than a 30% interest in the company, HMRC states that it considers that the word “possesses” refers to legal, as opposed to beneficial, ownership.

HMRC continues:

“When shares are subject to a sale under a multiple completion contract, the seller may (depending on the terms of the contract) lose beneficial ownership of all of the shares on the date of the contract. However, the legal ownership of the shares is retained until the sale of those particular shares has completed. This is the case even if those remaining shares are converted to so-called deferred shares with no voting or economic rights in the company on completion of the first tranche. Therefore, as long as the seller remains a legal owner of so many “non-completed” shares that exceeds the 30% limit, they will remain connected with the company by virtue of s1062(2)(a) – possession of ordinary share capital. In such circumstances, the seller would not qualify for capital treatment under s1033 CTA 2010.”


In future, HMRC will apply the connection test as described above, which may result in some applications being rejected.

In general terms, although we have advised on single contracts with multiple completion, these involve practical complications and difficulties, and our view is that this route should be regarded as a ‘last resort’ option. In some cases, it may be worth exploring whether a Newco MBO on deferred terms would be a practical alternative.

For further information or assistance, please get in touch.