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Creating a Group of Companies

Creating a Group of Companies

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I'm looking for some reassurance on how to treat fixed assets in this situation.

Company A is looking to split a revenue stream in to an entirely new company, company B. Both companies will be owned by Holdings.  Holdings is purely a mechanism for paying dividends to shareholders and will pay employees salaries which will be recharged to the subsidiaries.  Possibility of further recharges such as rent and rates etc. 

Am I right in thinking that as Holdings will not be making money then to avoid creating accounting and tax losses from depreciation and capital allowances it would be best for the subsidiaries to own the fixed assets individually with an election to transfer at their TWDV?  And if this is the case, is it acceptable for rent to be charged to Holdings to recharge to the subsidiaries even though the lease will not be shown on their balance sheet? 

Thanks in advance.

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paddle steamer
By DJKL
11th Sep 2015 11:55

There are other considerations besides tax etc

There are of course other considerations that come in to play besides tax/accounts profit in holding company.

Some group structures like to keep assets outwith those parts of the group that are incurring liabilities/the potential for liabilities, there is accordingly no right/wrong answer re structure. However as Holdco will need distributable profits for it to pay dividends your concerns may also be valid.

For instance subject to investigating tax treatment there might be merit in the Holdco leasing the assets etc to the operating subsidiaries.

You also want to consider vat and whether a group vat registration is desirable.

Re lease on balance sheet, what do you mean here, the running rent, a lease premium paid, leasehold improvements? It is perfectly straightforward (subject to lease to Holdco permitting sub letting) for Holdco to sublease use, with rents payable by subs featuring in their P & L and coming into Holdco as rental income.

All thinks tend to be possible, however to avoid unforeseen consequences you ought to get someone to review at very least:

1.any vat pitfalls within proposed structure

2.what a proposed structure say leasing property/plant by Holdco to Subs might have on the shares in holdco re ER relief ,if Holdco shares later sold, or BPR re IHT on same.

Maybe you should think through why the group structure is being considered and that might steer your thoughts as to what organisation would best fit with the primary purpose of the proposed structure?

 

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By Gem7321
11th Sep 2015 12:21

Thanks for your reply. 

Thanks for your reply. 

 

We have already decided that there will be a group VAT registration.  The proposed structure is that the only 'real' income will be dividend income from the subsidiaries, which will then be distributed to the shareholders of Holdco, in theory there should be no trading profit or loss.  

 

Currently the lease is in the name of Company A who pays the rent, and all leasehold improvements alongwith the long term lease in Company A balance sheet. From a practical point of view it would be easiest if the property owner could charge rent to Holdco for Holdco to then recharge to the subsidiaries, but without holding the lease in the balance sheet is this possible?  Will we require 2 leases in the names of the individual subsidiaries and will the owner need to issue 2 invoices for rent to the subsidiaries? If the lease and improvements are in the Holdco balance sheet then an accounting loss (but I understand not a taxable loss) will again be created by writing off, I believe is being written off over 10 years.  I appreciate that if it is being written off in the Holdco then it is not being written off in the subsidiaries so the net effect is the same but it will look odd for the Holdco to be reporting an accounting loss. 

 

The main reason for splitting the trades is to avoid any future upset between the directors of the business who head up their own divisions.  IHT advantages of this structure have also been discussed with the individuals accountant. 

 

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