Corporate group or standalone entities?
15/02/24
What could a corporate group structure mean for my business?
Throughout your business’ lifecycle, you’ll inevitably begin to consider how best to protect it. Whether this is by mitigating market risks, minimising tax liabilities, or streamlining operations, the question of your company’s structure may come to the surface.
Could a change in structure be what takes your business to the next level? It may be time to explore the benefits of creating a corporate group structure, compared to remaining as standalone entities.
We review the benefits and disadvantages of having a group structure, noting that standalone entities now need to consider their associated companies (companies under common control) when:
- Calculating their eligibility to the small profits rate of tax, and
- Determining whether they need to pay tax earlier in instalments.
To refresh, a corporate group structure is when a limited company (the holding company) owns one or more other limited companies (the subsidiaries). A non-group structure on the other hand, refers to a company that is owned directly by individual shareholders.
A group structure allows for:
- Group relief for tax – corporation tax is economically charged on a group basis where losses and profits are generally able to be netted off within a group.
- Nil gain/nil loss on the transfer of assets – broadly assets can be moved around a group of companies without any immediate capital gains consequence, so that the business activities carried on within the overall economic ownership of a corporate group are tax neutral.
- Similarly, stamp duty tax relief and stamp duty land tax relief where applicable allow assets to be transferred within a group with full relief to those taxes.
- Substantial shareholding exemption generally allows for the gain a holding company has in disposing of a substantial shareholding in another trading company to be exempt from tax.
However, some of the disadvantages of a group structure are:
- A small company that is exempt from audit may require an audit due to the group size.
- The corporate interest restriction for companies that have net interest and financing costs over £2 million is applied on a group rather than standalone basis – with the current higher rate of interest, an increasing number of individual and group companies will be impacted by this restriction.
- Similarly, the restrictions of using carried forward losses for companies with profits greater than their deductions allowance (which is a maximum of £5 million) is applied on a group basis.
The optimum structure for each business will be specific to each scenario. To find out more and discuss your requirements, please reach out to Esther Ollech: esther.ollech@mgr.co.uk
