QUESTION: Business has been going well the past few years and we have decided to spilt our wholesale and retail sales operations so that we can focus on growing the business further. We intend to transfer the retail sales trade to a new group company, and I understand there are reliefs to allow this without a tax charge. Is there anything else we should be considering?
ANSWER: There are downsides to adding more companies to your group structure, including the added compliance costs for preparing additional Financial Statements as well as managing multiple tax registrations. You should weigh up any downsides against the benefits of separating the businesses. You may be able to achieve the same focus by having two divisions within the company that keep separate management information which are combined at the year-end for reporting purposes.
However, it would be common enough for a company that operates multiple trades or divisions to split their operations into separate companies. One reason for this is if one aspect has a higher risk profile than the other and you don’t want to jeopardise the steady trading conditions of the other. Another reason would be if you could foresee one arm of the business being sold off in the coming years and you want to make it sale ready.
While there are corporate tax reliefs that allow for transfer of trade and assets within a group structure, some of these need to be planned and claimed, while others are automatic. Whoever prepares your year end tax returns will need to be made aware of the transfer and you will need to record the disposal in your bookkeeping.
There are also VAT implications, however provided the transfer is done in the right way and each operation is capable of operating separately, the transaction could fall outside the scope of VAT on the basis that it is a Transfer of Going Concern.
If you are transferring property as part of the transfer of the business, you will need to consider the Stamp Duty Land Tax (SDLT) implications and claim any appropriate reliefs. Even if there is no SDLT payable due to reliefs a return must be submitted to HMRC within 14 days of a property transfer.
Another consideration that must be carefully planned and executed is the transfer of staff to new company. Under the Transfer of Undertakings (Protection of employees) Regulations 2006 (TUPE), when a business is sold and continues to operate in the same or similar way, then the employees of that business employed prior to the sale will transfer to the new owner.
The biggest implication of this being the employees’ rights and entitlements, including their length of service, are protected so that they are the same as before the transfer. Prior to the transfer, you are required to go through a process of information and consultation with the employees that a TUPE transfer is going to happen. Under TUPE this must take place “long enough before the relevant transfer to enable the employer of any affected employees to consult the appropriate representatives of any affected employees”.
Commercially, you will likely need to notify your bank and suppliers of the change in trading entity. You may need to arrange separate insurance and trade registrations.
Given the many complexities of a business transfer, you should consider your options and consult your tax advisers before moving forward to avoid any unforeseen complications or costs.
:: KellyAnne Murtagh (firstname.lastname@example.org) is senior tax manager at FPM Accountants Ltd (www.fpmaab.com). The advice in this column is specific to the facts surrounding the question posed. Neither the Irish News nor the contributors accept any liability for any direct or indirect loss arising from any reliance placed on replies.