Costs can be cut by merging firms

SJ writes: My wife and I jointly own the shares in two small trading companies. The reason for having two companies was to protect the assets of one company from the creditors of the other. This precaution is no longer required. Can we save time and money by operating both businesses within one company?

Answer

By combining the two into one you will save the administration effort of producing two sets of accounts, having two PAYE and Vat registrations and having two bank accounts. For tax purposes, the two companies are associated through their ownership. If a trade is transferred from one company to the other, it can give rise to a chargeable gain based on the value of that trade and any other transferred chargeable assets. This is, therefore, not advisable. An alternative is for you to sell one company to the other on a share-for-share basis. With the appropriate advance Inland Revenue clearance this will normally not be treated as a chargeable gain. For each share, you will receive one new share in the other company. The two companies will then form a group comprised of a holding company and a subsidiary. You will only have shares in the holding company. The subsidiary´s trade, assets and liabilities can then be transferred within the group to the holding company, leaving it dormant, and without triggering a tax charge. The dormant company can then be retained at a small annual cost but if it is not required it could be struck off once you have gained Revenue clearance.