Key tax considerations for the issuer in a rights issue
Key tax considerations for the issuer in a rights issue

The following Tax practice note provides comprehensive and up to date legal information covering:

  • Key tax considerations for the issuer in a rights issue
  • Issue of new shares is not a disposal
  • Discount element normally not a distribution
  • Deductibility of expenses of issue (fees, commissions, printing costs etc)
  • Issuer's VAT recovery position on supplies connected with a rights issue
  • No VAT recovery for exempt supplies
  • VAT recovery for taxable supplies—financial advice
  • VAT recovery for taxable supplies—legal advice
  • VAT recovery for taxable supplies—ancillary costs
  • VAT implications where the issuer belongs outside the UK

Key tax considerations for the issuer in a rights issue

IP COMPLETION DAY: 11pm (GMT) on 31 December 2020 marks the end of the Brexit transition/implementation period entered into following the UK’s withdrawal from the EU. At this point in time (referred to in UK law as ‘IP completion day’), key transitional arrangements come to an end and significant changes begin to take effect across the UK’s legal regime. This document contains guidance on subjects impacted by these changes. Before continuing your research, see Practice Note: What does IP completion day mean for Tax?

This practice note:

  1. outlines the key UK tax issues that a company raising funds by way of a rights issue might wish to consider, and

  2. unless stated otherwise, assumes that:

    1. the issuing company is a UK incorporated and tax resident company and, for VAT purposes, belongs in the UK

    2. the issuing company only offers new non-redeemable shares under the rights issue

    3. the shares to be issued under the rights issue are denominated in the same currency as the issuer's functional currency (ie the currency used by the issuing company to draw up its accounts)—where the issuer's functional currency differs from the currency in which the shares are denominated and provided specific conditions are satisfied, any gain or loss on a derivative contract entered into by the issuer to hedge its currency exchange

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