Have you considered restructuring to reduce risk using a holding company?
With the world hitting the pause button in recent weeks you may have had the opportunity to think about how your business operates and is structured.
Growing businesses and those with surplus assets should consider adopting a holding company structure to reduce risk. A holding company is a separate company which is inserted above a trading company. A holding company doesn’t necessarily trade itself but can be used to create a corporate group and to hold assets which are not required by the trading company.
A simple example of a group structure is shown below:
There are a number of reasons why having a holding company is more beneficial than having a standalone company.
The most common use for a holding company is to hold the trading premises or other investment assets such as surplus cash. The subsidiary carries on the trade and distributes surplus cash to the holding company each year. It is also possible to move the trading premises to the holding company and other plant and machinery and lease them to the trading subsidiary.
Where a company undertakes a number of different trades or holds other assets such as the trading premises then a group structure should be considered. If the different trades and property were held by different subsidiaries then if one company were to get into difficulty the group structure may protect the other trades and assets as they are separate legal entities.
Capital assets can be moved between the subsidiary and the holding company free of Corporate Tax. Dividends can be paid between the companies without Corporation Tax. It is also possible for a holding company to sell trading subsidiaries free of Corporation Tax in certain circumstances.
What should you do next?
It is important to consider your business structure periodically. Bates Weston Tax LLP are experienced tax advisors who can assist you in obtaining HMRC clearance for the restructuring of your business and work with your legal advisors to structure your business in a way that manages your risk and protects your assets.
Disclaimer: The information given in this article is generic in nature. You should take no action based upon it without consulting ourselves or an alternative professional advisor.