Group Restructuring: The Why, The When, and The How - Ad Valorem

The Why?

There are several advantages to implementing a group structure, such as the ability to relieve losses across group members, transfer assets like plant and machinery between group members, and centralise the management of all companies owned by the same individual or group of individuals.

A group structure also allows the business to separate different areas of its operations. This separation can be beneficial if one area fails, as the other areas will have limited liability for the failed part.

Additionally, a group structure provides shareholders with more flexibility when selling the business. Each area of the business, held in separate subsidiaries, can be sold individually or the business can be sold as a whole.

Moreover, a group structure can affect the payment dates and rates of the company’s corporation tax. Therefore, we recommend consulting with an accountant or tax advisor to determine whether a group structure is suitable for your business.

When restructuring your business, it is important to consider the impact on all of the business’s stakeholders, such as the shareholders, suppliers, employees and financiers. We would recommend getting professional advice prior to restructuring your business to ensure that it is the right route for the business.

The When?

There is no single “right” time to implement a group structure, as its implications can vary for each business. However, group structures are most commonly sought by companies that:

• Operate in high-risk areas.
• Are undergoing expansion or growth, such as planning to operate in a new area or provide a new service.
• Are preparing for a future sale.

If your business fits any of these descriptions, it may be worth considering a group structure. Generally, implementing a group structure earlier rather than later simplifies the process and reduces professional fees.

The How?

We always recommend first meeting with an accountant or tax advisor to determine whether a group structure is appropriate for your business.

Business restructuring can expose both the company and the shareholders to Corporation Tax, Capital Gains Tax, and Stamp Duty. Due to this, and depending on the complexity of the proposed group structure, we also advise completing a tax report. This report will detail the tax exposure of the proposed transaction and options for mitigating this exposure. With careful planning, many of the tax liabilities can be reduced, either partially or fully.

Following the completion of the report, we advise obtaining clearance under HMRC’s Transactions in Securities clearance process. This provides protection should HMRC enquire into the transaction in the future. The clearance application also forms part of the stamp duty relief application if relief is available on the proposed transaction.

Provided HMRC does not require further information, they usually grant clearance within 30 days of submission.

Once clearance is granted, legal paperwork must be drawn up to implement the changes. Upon signing the legal documents, an application for stamp duty relief can be submitted if available.

The restructuring process typically takes around three months from the initial meeting to the submission of a stamp duty claim.