Company Funds Transfer

Company Funds Transfer

Didn't find your answer?

Hi all,

First time I am posting a question/(s) on accounting web.

Scenario: I have a ltd company client with (company A) who makes close to £1million profit every year. They have seven shareholders. They want to set up a second (Company B)  which has the same shareholders as company A  to purchase a property, from this property they will move the operation of company A (once their current lease expires in a years time) and also let out part of this property for rental purposes. 

Questions: Since company A has large reserves (exceeding £2 million), can they transfer money to company B? This will not be a loan but a transfer of taxed reserves as company B will not be required to pay back any amount to company A.

Does it matter that there are seven shareholders?

Any law/HMRC correspondence which allow or block such a transfer?

 

I have advised my client that it is possible and there is not tax issue as this is not a transfer to any participator but to a company which has the same shareholders and shareholding. Thanks guys in advance for any answers/guidance

Regards Mo

Replies (10)

Please login or register to join the discussion.

By johngroganjga
11th Jun 2015 13:12

Any money transferred will be a loan.

There are no laws to prevent companies lending money to each other.

Thanks (2)
avatar
By User deleted
11th Jun 2015 13:16

This will not be a loan but a transfer of taxed reserves

Now that part is a bit unclear - there is no scope for transferring taxed reserves unless it's a payment in the form of dividends!

Thanks (2)
avatar
By KWest
11th Jun 2015 13:24

A does not go into B

The fact that company B has the same seven shareholders is irrelevant - Company A and company B are two entirely separate entities. As johngroganjga and taxguru point out loans or dividends from A could be used to fund company B but as this is a property transaction why not acquire the building from a mortgage, allow B to stand on its own two feet and leave company A's liquidity and net worth alone?

Thanks (1)
Replying to Tax Dragon:
avatar
By Mo_d
11th Jun 2015 15:42

Company Funds Transfer

KWest wrote:

Company A and company B are two entirely separate entities.

Yes agreed they are two separate entities, but are they not also connected because they have the same shareholders? Company A will not require the loan/transfer to be repaid. Is there anyway which we can transfer the funds from A to B? and if it is to be treated as a loan can they be written off in both accounts straight away

 

Many thanks

Thanks (0)
avatar
By WhichTyler
11th Jun 2015 17:48

Or...

Well A could own B and transfer the funds as share capital? 

 

Though it might be more logical for B to own A, receive a dividend and use that to buy the property. Then B is the parent investment/holding co, A is trading sub. Your accountant will advise on tax consequences of the move...

Thanks (0)
avatar
By User deleted
11th Jun 2015 18:09

They might be connected

Then again, they might not. It depends on whether you (or HMRC) deem "person" to include "persons".

Thanks (0)
Replying to PandoraSleeps:
avatar
By User deleted
12th Jun 2015 11:05

.

BKD wrote:

you (or HMRC)

 

Do you mean "you (or statute)" ?

Thanks (0)
avatar
By User deleted
12th Jun 2015 12:29

No

I mean "you (or HMRC)"

Thanks (0)
avatar
By Mo_d
15th Jun 2015 15:10

Thanks all for your responses

One last question on the mater before I go doolally!

What is the best method of transferring money from one company to another  (loan or dividend)where the shareholders/directors are the same, and the amount is not repayable, and are there any other factors that need to be taken into consideration when an amount is transferred.

I have been advised by one accountant that a group structure is the only method of doing so

Regards Mo

Thanks (0)
By johngroganjga
15th Jun 2015 15:25

A company can only pay a dividend to its shareholders.

If the shareholders do not want a loan between their two companies ever to be repaid (why they would want to deny themselves that option is beyond me) let them arrange for the creditor company never to ask the debtor company to repay it.

Thanks (0)