Turning Into A Limited Firm

JL writes: We have been trading in Britain for a couple of years as a branch of our overseas business. The UK trade is going from strength to strength and we would like to convert the branch into a UK limited company. This would then be a 100%-owned subsidiary of the overseas company. How do we go about this?

Answer

To switch from trading as a branch of an overseas company to trading as a limited company is fairly straightforward, writes Chris Lane, a partner in Kingston Smith.

The formation of the UK limited company can be quickly arranged once you have completed the paperwork to appoint the minimum of one UK director and another person as the company secretary. If there are two directors, then one of them can also be the company secretary. Your professional adviser will be able to guide you.

The process is essentially an administrative one. The old branch will have to collect any money it is owed, pay any liabilities and then pass its net assets to the new company. You will need to notify your customers, suppliers and insurers of the change along with changing your corporate stationery to reflect the new status of the firm.

Goodwill, which can sometimes be the biggest asset owned by a business, gets special treatment on the transfer to a limited company. Rollover relief is available so that no tax is charged on the transfer, but the rules on this are complex and specialist advice should be sought.

Tax is another matter that needs to be cleared up. The old branch will need to prepare a tax return up to the date that it ceases to be liable for corporation tax. If there are trading losses, these can be transferred to the new limited company. Any capital allowances that the branch has claimed can be transferred as well.

Vat can be dealt with easily by completing a “transfer of a going concern” form. The new limited company will be able to keep the same Vat number as the old branch.

Any employees will be protected under the transfer of undertakings rules, and their contracts will remain the same with no loss of rights. You do not need to hold discussions with employees. A simple letter to each one explaining the transfer and confirming that their rights have not changed is sufficient.