»Ê¹ÚÌåÓýapp

Section 312E ITEPA 2003

This section sets out what is known as the indirect employee-ownership requirement. This is in fact an overarching heading for 2 separate subsidiary requirements; the controlling interest requirement and the all-employee benefit requirement. For details of the all-employee benefit requirement, see EIM03057.

To meet the controlling interest requirement, a settlement of the shares of the company into a trust is required. »Ê¹ÚÌåÓýapp provisions of section 236M of the Taxation of Capital Gains Act 1992 (TCGA) are imported into section 312E to give the conditions necessary to meet the controlling interest. »Ê¹ÚÌåÓýappse conditions are given in terms of the settlement which meets the controlling interest requirement if:

• the trustees hold more than 50% of the ordinary share capital of the company
• they have voting powers in relation to all matters affecting the company and those powers would result in a majority vote capable of being exercised
• they are entitled to more than 50% of the profits which are available to be distributed to equity holders
• they would be entitled to more than 50% of the assets of the company which are available to equity holders if it were wound up
• no provision exists in relation to the company’s constitution, management, shares or securities to remove any of the above conditions without recourse to the trustees

»Ê¹ÚÌåÓýappse provisions have to apply to the company directly. Where the company is a member of a trading group but is not the principal company, the provisions have to be met by the principal.