New Group Structure

Help with creating group structure

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Dear my fellow accountants.

I hope you are all having a lovely weekend.

I am a sole practictioner and working with a client that wants to create a group structure but need some help as I have no prior experience in creating new group structures.

Info on my client: they run 2 small coffee shops in the midlands and both coffee shops trading under seperate limited companies. Both companies are owned 25% and 75% with 2 partners. They now want to create a top company that will own the shares in the 2 coffee shop limited companies.

I have a few questions.

Q1. Do they need to setup the top company before applying for the share for share tax clearance or is the top company setup after the tax clearance is obtained. The top company will be in the same shareholding split

Q2. What reasons do we need to give when applying for the tax clearance. The obvious one is that they will pay dividends to the top company for future investment and diversifying there risk but do we need to mention this or do we need to put other reasons? I have read that this may not be a valid reason. Please help. 

Q3. The shares in the 2 invidiual companies are 100 x £1 shares. The top company will be £1000 x £1 shares. However the split will still be 25% and 75%. Will this be an issue that the top company has more issued shares? (The shareholding split will still be the same)

Q4: I understand that once the group structure is created, we will be exempt from consolidated accounts in the top company as it is a small group? At what levels will we need to prepare consolidated accounts?

Q5: Anything else I need to look out for?

I really appreciate the community here and would love to hear your comments!

 

 

 

 

 

Replies (15)

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By Ruddles
04th Feb 2023 11:32

Re questions 1, 2 and 3:

There is no need for the Newco to be set up in advance of the clearance

If you want HMRC clearance to be valid, be upfront - exactly what are the reasons for the proposed set up? There’s no point asking folks here to guess what they may be.

Provided that the value of the existing companies is not less than £1k there should be no problem with the proposed share structure.

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Replying to Ruddles:
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By lindafox6201
04th Feb 2023 16:08

thank you for the response.

The reasons are for tax benefits, future investments in top company, reducing risk by separating trading companies with the investments, setting up emi scheme's to attract and keep employees for the long run. These are the main reasons why they are going through the group structure.

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Replying to lindafox6201:
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By David Ex
04th Feb 2023 16:47

lindafox6201 wrote:

setting up emi scheme's to attract and keep employees for the long run.

I had no idea coffee shops are such a cut throat business!

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Replying to lindafox6201:
By Ruddles
04th Feb 2023 17:28

Tax benefits top of the list? Hmmm…

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Replying to lindafox6201:
By SteveHa
09th Feb 2023 12:59

You may want to read TCGA S137(1) and reflect on the reasons.

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By Wanderer
04th Feb 2023 11:35

lindafox6201 wrote:

I really appreciate the community here and would love to hear your comments!

I'd ask why?
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Replying to Wanderer:
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By lindafox6201
04th Feb 2023 16:11

What are you asking exactly?

Accounting web is a community of accountants seeking other accountants advice/help.

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Replying to lindafox6201:
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By Tax Dragon
04th Feb 2023 19:28

I don't speak for Wanderer but as I'd ask why too I can answer for myself. I'd ask why as in I (as the clients' advisor) would ask them what they were aiming to achieve. You've set out some reasons people might want to do something like this, but some of those reasons don't sound applicable to your clients' situation as I envisage it. Which suggests the reasons given are not what the clients are trying to achieve.

So, notwithstanding what you've said, I'd ask why.

The group structure suggested seems to have as many, if not more, tax costs as it has tax benefits. (At least in theory. Obviously tax planning - if that's what this is - is case-specific.)

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By paul.benny
04th Feb 2023 12:30

What is Client trying to achieve by creating this structure? (why, even, are there two companies?)

Creating a group structure creates complexity and increases costs without any obvious benefit. You may do Client more service by understanding their motivations and deterring them.

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Replying to paul.benny:
By Ruddles
04th Feb 2023 12:45

The benefits may not be obvious, but …

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Replying to paul.benny:
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By lindafox6201
04th Feb 2023 16:10

It does increase complexity but it also has benefits.

Deterring them is not an option here as they are looking to make investments in the top company instead of taking dividends from there trading companies they will take dividends up to the holding co and make investments there (tax benefits).

The reason why there are 2 companies is by reducing the risk. They run risky businesses (coffee shops) and if one was to go down it would not affect the other!

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Replying to lindafox6201:
By Ruddles
04th Feb 2023 18:21

So the plan is to have an investment company as a parent of two trading companies? Have they really thought this through?

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Replying to paul.benny:
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By Tax Dragon
04th Feb 2023 19:32

paul.benny wrote:

What is Client trying to achieve [by creating this structure]?

[]s added.

I should have read on. As should OP. As you had already restated the question in Wanderer's post. And done so more neatly than I managed!

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By tom123
05th Feb 2023 10:24

When you say "if one was to go down" - the principal risk will be the leases.
Fairly sure the lessor (who presumably has a bit more clout than your client) might want guarantees from the holding company as well - perhaps negating the idea.

Will you be running separate PAYE schemes for each shop?

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Melchett
By thestudyman
08th Feb 2023 22:37

I think the additional compliance fees and complexity will make this structure quite a moot adventure for the client, in addition of unnecessary having two trading companies.

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