Creating a subsidiary - UK limited company

A general query about creating a subsidiary for an existing limited company.

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Hello

I have a general question about creating a subsidiary for an existing limited company that I have contracted through for several years.

It is unclear to me what will change in terms of reporting (both HMRC and Companies House) if I create a subsidiary?

Am I required to submit corporation tax and statutory accounts for both limited companies, or will I need to do that for the subsidiary, and submit consolidated accounts for the parent?

The existing limited company has approximately 400k revenue (I am the sole director and shareholder and the revenue is consulting fees from unrelated, corporate entities), and the new subsidiary is for a new business venture that does not involve consulting.  The medium-term objective would be to sell the new business, and a subsidiary appeals as I can minimize CGT by retaining the proceeds within the parent, and it somehow feels neater.

The practicalities of administering the existing limited company are quite simple and I want to get a handle on the extra admin I am potentially looking at.  It is not a big deal, it may mean I need to engage a professional accountant…which is fine.  Up until now, I have done it all myself; Corporation Tax accounts to HMRC and statutory accounts to Companies House using the (free) online submission functionality both entities make available (also the monthly PAYE submissions online with HMRC’s free software).

A general enquiry but thoughts would be appreciated, on both the practicalities and bigger picture tax and accounting issues I am probably missing.

Thanks in advance.

Replies (13)

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By Tax Dragon
15th Jun 2021 06:44

What use is a general response to a specific situation?

That's my way of saying (among other things) that there are many specific rules - at least for tax, I can't speak for the accounts - that might or might not apply, depending on detail. Many won't, of course, and I could reply making reasonable assumptions.... but then it's not really a generalised answer.

Time to buy in some advice, imho.

What I can tell you for nowt is that the mods would have preferred you to post anonymously, rather than creating a new account for your question. I'm making the assumption (which it is very reasonable for me to make, even if it's wrong... do you see my point?) that you already have a username with Aweb.

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Replying to Tax Dragon:
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By The Dullard
15th Jun 2021 10:14

Tax Dragon wrote:

That's my way of saying (among other things)...

Shouldn't that be amongst other things? Or are you one of the other things? in which case it should be among we other things

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Replying to The Dullard:
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By Tax Dragon
15th Jun 2021 10:29

Interesting.

Thank you. Live and learn.

Btw, I preferred Duggimon's exposition of "What use is a general response to a specific situation?" to my own.

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By Wanderer
15th Jun 2021 07:49

£400k consulting Revenue and "Up until now, I have done it all myself; Corporation Tax accounts to HMRC and statutory accounts to Companies House".

".. on both the practicalities and bigger picture tax and accounting issues I am probably missing."

What you are missing is the benefit of appointing an accountant to properly advise you.

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By Duggimon
15th Jun 2021 09:10

How long does it take you to do your accounts and tax return? Because you're earning over £1,000 a day in your trade, seems like your time would be better served doing what you do and paying someone else to do what they do and advise you on this.

Subsidiaries are not terribly complex for small companies as yours and it's a common enough structure that any qualified professional will be able to help you, however you have not yet determined if this is the best structure for your short, medium or long term plans and we're not going to post here wheedling out all the information required in order to get there, this is a very slow format for doing so.

Let's not waste our time and yours and just say you would be best taking your accounts to a meeting with a local accountant and talking through your plans in detail, keep an open mind and see what they advise your next steps should be.

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paddle steamer
By DJKL
15th Jun 2021 09:50

The one big question you have not addressed is, once the new business created in the sub, and once it sold on (assuming it is successful) are you happy for the sale proceeds to rest in the holding company or would you wish to extract the funds? If the latter , and if the sub is to be a trading company, then is a holdco/subsidiary structure really the way to go?

Speak to an accountant in detail before you make an expensive mistake.

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Replying to DJKL:
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By paullllllll
15th Jun 2021 22:03

Thanks DJKL. The former is the exact reason for the structure. Thanks again.

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By paul.benny
15th Jun 2021 10:48

Each company must prepare and file statutory accounts and tax returns; at the scale you mention, consolidated accounts are not required.

You do need to think about VAT, though. New venture will likely be in scope and you'll need to consider whether it should be separately registered. And how you deal with shared expenses and cross charges between the two.

As others have said, professional advice will help avoid costly mistakes.

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Replying to paul.benny:
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By paullllllll
15th Jun 2021 21:58

Thanks Paul. Appreciate the insights.

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By AndyC555
15th Jun 2021 13:09

Not really a good idea to have a trading company with a trading subsidiary. If TopCo goes under, for whatever reason, its assets include the shares it owns in SubCo.

"...it may mean I need to engage a professional accountant..."

Certainly a better idea than engaging an amateur.

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Replying to AndyC555:
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By paullllllll
15th Jun 2021 22:00

Thanks Andy, agree but the trading HoldCo carries zero debt, so the risk is minimal. I see your point though and have also seen it raised elsewhere.

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Replying to paullllllll:
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By Hugo Fair
15th Jun 2021 22:12

Not my area of expertise ... but although trading HoldCo currently carries zero debt, this does not guarantee zero risk in the future (for instance a substantial litigious claim could put it into debt, as can various other unforeseeable events).
Hence not usually recommended approach unless you can see substantial potential benefits to outweigh the risk.

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Replying to Hugo Fair:
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By paul.benny
16th Jun 2021 07:24

My thoughts exactly. But the impression from his comments is that the OP is only interested in the advice that supports his plans.

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