Chapter INTM517030
| Published date | 09 April 2016 |
| Record Number | INTM517030 |
For thin cap purposes, the equity of a company includes the issued ordinary share capital, the retained profits of the company and other reserves (see provisos below) attributable to equity shareholders.
As was done with debt in INTM517020, it is useful to look at accounting descriptions of items included in capital and reserves.
| Capital & reserves accounts item | Comment |
| Called-up share capital (ordinary shares) | Include as equity. |
| Preference shares | These are unlikely to be included in capital and reserves in a set of UK GAAP or IFRS compliant accounts because the characteristics of preference shares are usually more akin to a financial liability and therefore accounted for as a creditor. These shares should only be included in equity if they are in substance equity, for example, there may be no obligation to pay a dividend or redeem the shares. Whether preference shares qualify as debt or equity should be clear from the accounts if they are UK GAAP or IFRS compliant. |
| Share premium account | Include as equity. |
| Revaluation reserve | Normally include as equity. |
| Note, however, a third-party lender may want evidence the revaluation is appropriate, so may require a valuation of company property to be performed by a qualified, independent valuer. This would be updated at intervals. | ||
| Capital redemption reserve | A non-distributable reserve which is included as equity. | |
| Capital contributions | A capital contribution is a contribution to the equity capital of a company. It is not a loan and creates no obligation to transfer economic benefit to the maker of the contribution. See INTM502050. | |
To continue reading
Request your trial