One of the best ways for businesses to mitigate tax exposure is by developing a group structure. Doing this has several advantages, including the fact that if one of your subsidiary companies makes a loss, this loss can be offset against other profits elsewhere in the group. Indeed, group structures can be a very efficient way of protecting your assets and maximising profits.
You’ve certainly come to the right place if you’re looking for guidance for your upcoming tax year, with Williamson and Croft being tax specialists and accounting experts with over a decade of industry experience. Intrigued to discover how we can help you to optimise your business? Simply get in touch with us to find out how we can help to upgrade your operations.
In this article all about using group structures to mitigate tax exposure, we’ll start with the basics.
What is a group structure?
A group structure is used to describe a situation where a limited company owns one or more other limited companies. The ultimate owners at the top of the structure become known as the ‘holding company’. There is no limit to how many subsidiary businesses a holding company can own.
A group structure is usually put together to isolate hard-earned assets in a holding company in order to protect them from subsidiary businesses operating beneath the structure. A group structure is only typically suitable for large companies that develop at a fast rate. Smaller companies should consider the associated risks before proceeding.
The tax advantages of adopting a group structure
There are several tax advantages to adopting a group structure which can help optimise your business and improve cash flow. Such advantages and benefits include:
- Transfer assets: By adopting a group structure, assets can be transferred easily between companies. Disposal won’t be charged against Corporation Tax on gains.
- Pay collective VAT: VAT can impact your business in several different ways. Companies in a group structure can mitigate the impact of VAT, with just one business paying VAT for supplies, benefitting the other entities.
- Reduce corporation tax: In a group structure just one company needs to account for Corporation Tax thanks to the ‘group payment arrangement’. Corporation tax also has the potential to be reduced since losses of companies under the structure can be surrendered to other profit-earning businesses.
- Stamp duty exemptions: In some cases, group companies can claim relief from stamp duty land tax when transferring assets between businesses.
- Substantial Shareholding Exemption (SSE): A well-organised group structure will allow SSE eligibility. A SSE allows a company to sell its shares in subsidiaries without Corporation Tax taking a portion of the gains.
How to set up a group structure
Having heard the advantages of setting up a group structure, your next thought might be ‘How do I set one up?’. The first thing you should do is consult a legal or financial advisor to make sure your plans are compliant with the regulations of your relevant industry. Once this has been organised, you can start thinking about the type of structure you want to set up.
Next, create the holding company, register your subsidiaries and transfer any necessary assets to get started. When this has been organised, you should consider planning for the future, putting in plans for ongoing management, record-keeping solutions and innovative software that will make the increased responsibilities of your team far easier to manage. New subsidiaries can be added to your group, but we only recommend this once your structure is firmly in place.
Need some guidance?
Looking for advice about how your business can take advantage of group structures? Specialists in tax, accountancy and financial solutions for transaction services, among other areas, at Williamson and Croft you’re in good hands. Simply contact us and we can easily guide you through your business tax obligations while also offering advice as to how you could restructure for the benefit of your overall cash flow.
To get started, why not consider a comprehensive business audit that will give us the best picture of the strengths and weaknesses of your business, with our cloud-based audit technology ensuring an in-depth breakdown? No matter what sector you operate in, be it property, manufacturing or beyond, our specialist team can help elevate your business.