Using a group structure for small companies can be incredibly useful for both tax planning and risk management but what is a group and under what circumstances might they be useful?
What is a Group?
A group is formed where one company owns another company or several companies, for Corporation Tax Purposes ;
Two companies under common control by a non-corporate body do not form a group. For tax purposes, there are different types of groups depending on the tax in question
Corporation Tax group: this requires 75% control of all subsidiaries, both directly and indirectly.
Capital Gains Tax group: this has a slightly lower control requirement. Direct ownership must be equal to at least 75% but indirect holdings need to be equal to over 50% only.
VAT group: any companies under common control by any person may be part of a VAT group.
Stamp Duty group: this is the same as a group for Corporation Tax purposes.
A group may be formed:
By an existing corporate entity incorporating a subsidiary.
By acquisition of an interest in another company.
Insertion of a holding company, by way of a share for share exchange.
Benefits of a Group Structure
A company may wish to run a new activity or once off project through a new company to separate it for reporting, but more importantly to minimise risk if something went wrong. Also it may assist if there was a sale of that particular part of the business that it could be sold more easily through a share sale, the activities would be ring fenced and it could have significant tax advantages.
The existence of a 100% corporate group is very useful for tax planning. The key benefits include:
Group relief for trading and non-trading losses, including brought forward losses (from April 2017).
Tax neutral capital asset transfers.
Capital loss group relief.
Tax-exempt dividend receipts.
Substantial shareholdings exemption relief for capital gains arising on the sale of a trading subsidiary.
Stamp Duty and Stamp Duty Land Tax exemptions for intra-group transfers.
VAT grouping to allow VAT free intra-group transactions.
Of course formation of and running and extra limited company will cause some additional administration and cost, but in some circumstances the benefits could be worth significant sums in tax and other savings.
If you would like any further information, please contact us to discuss whether a group structure may help your business.