ABC shares are used to allow different levels of dividends to be paid on different shareholdings rather than having to payout dividends pro-rata to the shareholdings. It can be used effectively in conjunction with the low salary, high dividend strategy above.

They are just shares of different classes - "A Shares", "B Shares", etc and may often have exactly the same voting and other rights but allow for different levels of dividends to be paid on each. Many large PLC's will have such shares but their use in small private companies is often more focused on the tax benefits. HMRC may again not like it but they have to accept it where there is no evidence of tax avoidance. Often there is little they can do about it if set up correctly.

An alternative is to use dividend waivers but ABC shares can be more flexible.

However, more recent legislation on employment related tax avoidance may have limited their use in some circumstances. The legislation is wide ranging so that where the benefit is connected with employment and there is a tax avoidance motive, the dividends from such shares would be treated as employment income.

Despite this, a new company can be set up with whatever type of share capital that the initial founders of the company want. Once the subscriber has obtained their shareholding, the fact that they subsequently become an employee cannot change the nature of the dividend income that comes from that share. HMRC may not like this but again there is little they can do.

Where new directors are taken on, ABC type shares are issued to them and they have employment contracts, the position is not totally clear under the law.

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