Every good hospitality business obsesses over the things guests can see. The menu, the covers, the turnaround on a Friday night, the manager who keeps the whole thing humming. Far fewer owners give the same attention to something sitting in the background that could be saving them real tax every year: how their company’s shares are actually set up.
For most operators we meet, the answer is “we’ve never really looked.” One class of ordinary shares, split 100% to the founder or 50/50 with a partner, set up on day one and never touched since. It works, but it is leaving flexibility, and money, on the table. Enter alphabet shares.
So what are alphabet shares?
It sounds fancier than it is. Alphabet shares just means your company has more than one class of share, labelled A, B, C and so on, rather than everyone holding identical “ordinary” shares. Each class can be voted a dividend independently.
In plain English, you are no longer forced to pay everyone the same dividend, at the same time, in the same proportion. For a sector as seasonal and people-driven as hospitality, that flexibility is worth having.
Why it suits hospitality so well
- Making the most of a couple’s tax bands. If one partner pays higher-rate tax and the other has allowance or basic-rate band going spare, separate share classes let dividends be directed sensibly rather than piling all the income onto one person.
- Rewarding the people who make your sites tick. A brilliant general manager can be given their own class of shares so they genuinely share in the success they help build, without handing over votes or control of your business. Worth a flag here: giving shares to someone who works for you brings “employment-related securities” rules into play, which have their own tax and reporting quirks and usually a simple election to sign at the outset. Straightforward when handled properly, but a get-it-right-from-day-one job.
- Flexing with the trading year. A rigid 50/50 split forces everything to be symmetrical. Separate classes let you respond to a bumper summer or a quiet January, and to who has actually drawn what, without restructuring every time.
- Planning for what’s next. Bringing in the next generation, or a co-founder, through their own class is far cleaner than trying to carve up existing shares down the line.
The important bit: doing it properly
This is where DIY structures come unstuck, so it is worth being clear. Splitting dividends across a couple’s tax bands is not some aggressive loophole. It is well-trodden, legitimate ground. HMRC challenged exactly this kind of husband-and-wife arrangement all the way to the House of Lords in the well-known Arctic Systems case, and lost.
The reason it stood up is the key to getting it right. As long as the shares are proper ordinary shares carrying full rights (votes, a share of the capital, and a share of the proceeds if the company is ever sold or wound up) and they are a genuine outright gift between spouses or civil partners, they are protected by the spouse exemption.
Where it goes wrong is when shares are engineered to be nothing more than a pipe for income, with no votes and no stake in the capital. Those get caught by the “settlements” rules, and so do dividend waivers and gifts of shares to people who are not your spouse or civil partner, such as adult children who do not work in the business. The message is simple: the structure has to be real and commercially sensible, not a paper exercise dusted off the week before a dividend is declared.
Why this matters more than ever right now
Here is the part that makes this a job for today, not someday. The 2025/26 tax year has just closed, and its personal tax return, the one due by 31st January 2027, is the first to carry new disclosure requirements for directors of close companies. A “close company” is broadly one controlled by five or fewer people, or by its directors, which is almost every owner-run hospitality business out there.
Until now, a director simply ticked a box. On the 2025/26 return, if you are a director and a shareholder, you will need to report:
- The name of the company
- Its company registration number
- The percentage of the shares you hold (and the highest percentage you held in the year if it changed)
- The dividends you received from that company (including nil)
In short, HMRC is joining the dots. Your shareholding and your dividends will now sit side by side on your personal return, in black and white. That is not a reason to shy away from alphabet shares. It is exactly why your structure needs to be deliberate, commercially sound and properly documented, because it is now firmly on the record.
If your share structure still looks the way it did the day you incorporated, now is the time to give it a proper once-over, because the very next return you file will put it on record. Get it right and it can save real tax across the people who own and run your business. Leave it as an afterthought and it is now more visible than it has ever been.
At Williams Stanley, hospitality is what we do, and getting the unglamorous-but-valuable things like this right is where we earn our keep. If you would like us to review your share structure ahead of your 2025/26 personal tax return, get in touch and we will talk it through in plain English.
A few questions we get asked by operators:
What are alphabet shares, in one line?
Simply having more than one class of share in your company (A, B, C and so on) so you can pay different dividends to different shareholders, rather than everyone getting the same. Handy when your trade swings with the seasons.
Can I really give my partner shares to save tax? Isn’t that avoidance?
It is legitimate and long-established, as long as it is done properly. Plenty of partner-run hospitality businesses do exactly this. The shares must be proper ordinary shares with full rights (votes, capital and a share of any sale proceeds) and a genuine gift. Income-only shares and dividend waivers are a different story and can be challenged, which is why the set-up matters.
Can I give shares to my general manager or head chef instead of family?
Yes, and it can be a great way to reward and hold on to your key people. Just be aware it counts as “employment-related securities,” which has its own tax and reporting rules, so it needs setting up correctly from day one.
I run a few sites through one company. Does this apply to me?
Almost certainly. If your company is controlled by five or fewer people, or by its directors (which describes most owner-run hospitality businesses), it is a “close company” and the new rules apply to you.
What exactly do I have to report?
On your 2025/26 return: the company name, its registration number, your percentage shareholding (the highest held in the year if it changed) and the dividends you took, including nil.
When does this start?
It already applies. 2025/26 is the first year affected, and that return is due by 31st January 2027, so it is the one to get right this filing season.