Corporate restructuring is often seen as a way for companies to react to financial difficulty, with companies adjusting their structure to protect themselves, usually by reducing the company’s size.

A smaller company typically has lower costs and this type of restructure might also present the opportunity to shed sections of the business that are less profitable, acting as a drag on overall profitability.

But responding to tough times isn’t the only reason a company might go through a restructuring process. For many businesses, it can be a useful way to protect profits, operate more efficiently, or prepare for a sale or acquisition.

If you’re thinking about restructuring your company and creating a holding company structure, it’s essential that you talk to us first for professional advice, and for help seeking prior clearance from HMRC. Otherwise, it’s easy to fall foul of the complex rules in this area.

Why restructure?

If you’re the owner-manager of a successful limited company, you might be wondering what to do with the cash that has accumulated in your business over time. You may also be concerned about what will happen to it if your company runs into trouble.

One solution is to set up a group structure, by transferring your trading company’s shares to a new holding company. Your trading company’s profits and valuable assets can then be transferred to the holding company tax-free, allowing you to reduce the risk of having all of your profits in one company.

This may have other benefits if you intend to sell parts of your business separately, or if you’re putting together a succession plan to pass your wealth on in the future.

For example, the substantial shareholding exemption (SSE) might apply if you go on to sell the trading subsidiary, which provides an exemption from corporation tax on chargeable gains. This is subject to a set of qualifying conditions. 

Applying for HMRC clearance

HMRC offers the option to apply for clearance on the tax treatment of a number of situations, and we would always recommend doing so before setting up a group structure.

This step isn’t mandatory, and doesn’t guarantee that HMRC won’t query the arrangements once they’re implemented. It does, however, provide reasonable reassurance that your new company structure is likely to receive the tax treatment you expect, and that it doesn’t obviously breach certain across-the-board anti-avoidance rules.

Restructuring can also trigger certain ‘tax traps’. For example, if a partner in the business sells shares to a new holding company, they might find themselves liable for capital gains tax.

Make sure you’re fully informed on the tax and legal implications of restructuring before you go through this process. 

Get in touch

We can talk you through the details and work out whether this is the best option for your business, as well as applying for clearance on your behalf.

Contact us to talk about your business structure, or find out more about our services for limited companies.