Setting up a group
In business we face risks every day and thankfully we can protect ourselves from most.
That said, many businesses trade from a single company holding all of its assets. This arrangement places the company’s future at risk should the unexpected happen – it could suffer a large bad debt, an un-insurable claim or worse.
If the company can’t survive such events, sadly the company goes into administration.
So if you’ve got valuable assets on your balance sheet, it’s a good idea to think about a re-organisation. You can separate your valuable assets from the trade itself, so that the trading company bears all of the risks of trading whilst your assets are ring fenced elsewhere.
There’s tax implications to think about, but they can be mitigated assuming a number of conditions are met.
I worked with a company recently which had this structure:
Here, if company 2 failed, it was likely that company 3 and 4 would also fail. If company 1 failed, then all of the companies could.
We therefore put this new structure in place:
Here the individual companies are more secure if one fails, and we achieved this with no tax charges whatsoever.
Expanding into new markets
Also, if you’re expanding into new markets or products, you should consider doing the same thing. Why not place your new venture into a separate entity to protect your existing trade and safeguard your assets. If the new venture gets into difficulties, it won’t take your core business with it.
In this scenario, there are two options available to you:
- Create a group structure, with the new venture as a subsidiary of the main trading company, so sitting underneath it.
- Create a stand-alone company, with individual shareholders, rather than as a subsidiary.
Getting into financial difficulties
It is worth noting that these re-organisations should not be left until the business actually experiences problems. An insolvency practitioner would have cause to reverse the transaction, as it would be seen to be done purely to avoid paying liabilities in the CurrentCo Ltd.
There are specific rules relating to “transactions in securities”. These rules aim to charge a tax payer income tax on any potential gain when dealing with shares and could result in significant tax liabilities.
However, you can avoid these liabilities if we can demonstrate that the transaction was undertaken for commercial reasons rather than for tax avoidance.
The good news is that we liaise with HM Revenue and Customs (HMRC) on your behalf to get tax clearance on the transaction before you undertake it. That way, you have the knowledge that there will be no negative income tax consequences before you go ahead.
Likewise, we can often avoid capital gains tax and stamp duty too with good tax planning, and advance clearance from HMRC before the transaction goes ahead.
If you would like to discuss any of the above content or setting up a group, please contact Michael Burgess or Rebecca Thorley on 01782 279615 who will be happy to help.