As businesses grow, their structures often become complex, leading to potential tax inefficiencies. Whether a company consolidates multiple activities into one entity or operates separate stand-alone companies for each division, a lack of strategic tax planning can result in unnecessary liabilities. Our case study explores how we helped a South London-based business restructure its operations, leading to significant tax savings and a more efficient corporate setup.

Our client, a mid-sized consultancy firm, had expanded rapidly over the years, acquiring different business divisions, each with separate revenue streams. Their structure had evolved in an ad hoc manner, with some activities operating under the same legal entity, while others were managed through separate, stand-alone companies. This setup resulted in:

• Higher overall tax liabilities due to inefficient allocation of profits and expenses.
• Increased compliance costs from multiple tax filings and administrative burdens.
• Reduced flexibility for future investment, divestment, or succession planning.

Our team at UMC Accountants conducted an in-depth review of the company’s corporate structure and the shareholders’ ultimate business objectives. We identified two potential restructuring options to optimise tax efficiency:
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1. Establishing a Group Structure with a Holding Company
   • By forming a holding company that owned various subsidiaries, we enabled the client to legally separate its different business activities while retaining tax efficiencies within the group.
   • This structure facilitated group relief, allowing the transfer of tax losses between profitable and non-profitable entities, reducing the overall tax burden.
   • It provided a legally distinct separation between high-risk and low-risk business activities, improving financial security and protecting shareholder assets.
2. Shareholders Holding Individual Companies Directly
   • For divisions that were potentially saleable in the future, we recommended maintaining them as separate entities without a holding company.
   • This ensured that if a business unit was sold, the shareholders could benefit from Business Asset Disposal Relief (formerly Entrepreneurs' Relief), reducing the Capital Gains Tax (CGT) liability to 10% instead of the standard 20%.

After implementing the restructuring plan:

• The company saved over £50,000 annually in tax through group relief and strategic profit allocation.
• Compliance costs were reduced by 30%, as certain reporting obligations were consolidated.
• The new structure allowed for a future sale of a subsidiary, benefiting from the lower CGT rate.
• Shareholders had increased financial flexibility for reinvestment and estate planning.

Optimising a business structure is essential for minimizing tax inefficiencies, safeguarding assets, and maximising shareholder value. If your business has multiple divisions or operates under a fragmented structure, a professional review could unlock significant tax savings. Contact UMC Accountants today to explore the best structure for your business.