ACCA TX ^UK Syllabus E. Corporation Tax Liabilities - Disposals of shares by companies, with share identification rules - Notes ^{3 / 5}

Matching rules

Disposals of shares for individuals and for companies are extremely similar.

There are 2 differences, these are that we index the cost of the shares and when looking at shares to be sold, and we do not look 30 days after the sale, we look 9 days previous to the sale.

There is no other difference between the two.
For this reason, the same illustrations and quizzes have been used to explain this are so that you can compare for yourself both applications.
When shares are disposed of, a problem arises in finding their allowable cost, if the shares were acquired over a long period of time.
To make this simpler, HMRC uses a set of rules to determine the acquisition date and cost of the shares being disposed of.
These rules are called the matching rules.

Disposals of shares are matched with acquisitions in the following order:

Shares acquired on the same day of disposal.
Shares acquired within 9 days before disposal date (there is no indexation calculation required for this match).
Shares from the share pool.

This would be much easier to understand if we did an example!

Illustration:

Benazir Ltd. owns shares in L plc.

they acquired 1,500 shares in the company on 31/05/2016 for £20,000, and 500 shares on 30/06/2017 for £10,000.

On 21/02/2025 Benazir Ltd bought a further 200 shares in L plc. For £4,000.

Benazir Ltd sold 1,000 shares in L. plc for £25,000 on 28/02/2025.
Calculate Benazir Ltd’s capital gain on the disposal of the shares in February 2025.
Indexation factors:
To June 2017 £356
To December 2017 £1,731

Solution:

We need to dispose of 1,000 shares.

Let us apply our matching rules to see which shares we are disposing of.

Note you do not round indexation in the share pool.

FIRST MATCH – same day acquisition	SECOND MATCH – 9 days previous to disposal acquisition	THIRD MATCH – share pool
None.	21/02/2025 – 200 shares for £4,000.	800 shares needed from share pool.

Indexation factors:

To June 2017 £356
To Dec 2017 £1,731

Description	Number	Cost	Indexed cost
31/05/2016 purchase	1,500	£20,000	£20,000
Indexing to June 2017:			£356
Indexed cost of May 16 purchase			£20,356
30/06/2017 purchase	500	£10,000	£10,000
Total			£30,356
Index to Dec 17:			£1,731
Total	2,000	£30,000	£32,087
Disposal from share pool	(800)	(800/2000) * £30,000 = (£12,000)	(800/2000)*£32,087 = (£12,835)
Remaining in share pool	1,200 shares	£18,000	£19,252

Specifically note

how each purchase will be indexed to the next EVENT date (an event being either a purchase, sale or rights issue)

Calculating capital gain:

Disposal proceeds £25,000

Acquisition cost:

07/03/25 (£4,000)

Share pool (£12,835)

Capital gain £8,165

Note the share pool figure in the above calculation is the indexed cost figure. This could be shown separately as cost £12,000 and indexation (£12,835-£12,000) £835. This is useful to be aware of because indexation cannot create or increase a loss so if the proceeds had been £11,000 and the cost £12,000 there would have been an allowable loss of £1,000. But if you had not separated out the cost and indexation you would have calculated a loss of (11,000 - 12,835) £1,835 which would have been incorrect.
You also might want to try to draw a timeline to ensure that you do not miss any acquisition dates!
From this illustration, you have learnt how to index shares.
Shares issued through a bonus issue will not be indexed as no money has been paid for them.
It will be assumed as though they have been acquired on the last purchase date.
Shares that have been issued via a rights issue will be indexed as normal, as money has been paid for them.