When one becomes two - or more

When your business is thriving you might consider expanding, investing in or acquiring another company. Before you do it's wise to understand how your chosen path to building your own small (or big) empire will affect your tax obligations.

If you are simply expanding an existing business, there isn't an issue, but if you invest in another company as a shareholder or buy another business creating a subsidiary there will be.

If you go down the route of creating a holding company with other smaller companies under its umbrella – a Group – then your tax returns will need to take all the companies into account.

Here are the various categories:

Related parties – this is where anyone with management control, significant influence or decision making power is linked to another company (or companies) in a similar role.

This can include a member of that individual's family – the key phrase here is 'significant influence'.

Associated companies – have shareholders in common, or if a company controls another company – i.e. has shares. 

Groups – where one company owns one or more subsidiary companies. 

Subsidiaries – are companies where some or all of the shares are owned by another company, rather than an individual.

Making the right decision

When you are considering the structure of your company's operation, it's worth thinking about the best strategy in relation to Corporation Tax as there will be an impact.

So do you take over a company and absorb it into your current operation or acquire it as a separate entity and run it alongside your existing business? It depends on each company's profitability to decide on the most tax efficient strategy.

While there is a mathematical answer to the question, there are many aspects to consider and it's wise to take advice from someone who can guide you through the implications of each option.

Need some guidance? Give us a call on 01992 554444.