There are many reasons to consider changing your corporate structure, and recognising the need to act at the right time can make a significant difference to your business and personal goals.
We recommend reviewing your corporate structure proactively to position your business to remain competitive, resilient, and ready to take advantage of future opportunities, including being ready for sale.
The apparently easiest solutions are regularly peppered with tax traps, so we give a flavour of what we do and why we do it.
Asset protection
In our experience, probably the most common scenario is the need to better protect assets, such as property or surplus cash. It would be prudent to ring fence these assets from risks, especially in uncertain market conditions. Forming a holding company and moving those assets up to it is the most common solution. This can still be restrictive, particularly where property is considered as separate from the business.
You may want to introduce share incentives to staff, and to be tax efficient these would need to sit within the holding company. Alternatively, you may wish to gift shares to the family without involving the business. With a holding company structure, it is not usually possible to do either of these things.
However, you could also have a problem if the trading subsidiary is sold, as the sale proceeds would then sit in the holding company and withdrawing them would result in high rates of dividend tax.
Demergers could be a suitable solution to this problem.
Demergers
The most common demerger scenarios are where two distinct trading activities are to be separated, or where a trade is to be separated from non-trading assets (such as property, investments or surplus cash).
Demergers are complex transactions but if done correctly, tax reliefs are available which enable them to take place with no tax consequences (although a small Stamp Duty liability may be incurred).
However demergers require advance clearance from HMRC to confirm that the restructure is not tax motivated, so where a business sale is planned, getting a clearance is unlikely to be possible as HMRC will consider there to be a primary aim of obtaining a tax advantage.
Shareholder exit
When a single shareholder wishes to exit a company, often the most obvious solution is a company purchase of its own shares (CPOS). This is where the company buys back the shares from the individual and then cancels them.
The tax rules around a CPOS contain very specific conditions to enable the proceeds to be taxed as a capital gain and not as income.
However, the shares must have been owned for at least five years, and the company must have enough retained profits to fund the CPOS. Failure to meet just one condition would result in the CPOS being liable to Income Tax at dividend rates.
Where it is not possible to use a CPOS, alternative approaches can be considered, from straightforward selling of shares to existing shareholders through to a restructure involving a new holding company. The latter is most useful because the business can then fund the purchase with minimal tax liabilities involved.
There are other scenarios where a restructure may be appropriate so we encourage discussions with your regular Randall & Payne contact, ensuring the tax team can be involved at the right time to explore the best option.
Contact James Geary for more information by emailing james.geary@randall-payne.co.uk or calling 01242 776000.