In the last five years, Northern Ireland business owners and management have endured, and continue to endure, exceptional economic upheaval arising from both the BREXIT vote and the COVID-19 pandemic. This is in addition to the need to constantly adapt and evolve their business to meet the everyday economic, legal and regulatory issues as well as being ready to take advantage of opportunities as they arise.

Investing in human capital, entering new market places or diversifying product lines are a few of the tools available to owners and management to seize opportunities the economy brings.

Another strategic resource at their disposal is the corporate restructure. A company restructure is the process of modifying a company’s share capital to achieve a commercial objective.

Reasons for a restructure:

There are many reasons to undertake a feasibility study as to the commercial benefits of restructuring the share capital of a business, for example;

To mitigate risk

Over the life of many companies, owners and management expand into different market places and make various investments with varying success. After some time these companies have a hodgepodge of different business activities running side by side with underperforming activities throttling the growth of the more profitable ones.

A structure could be designed to segregate the various business activities from one another to allow profitable activities more room to breathe. Also, some activities may come with their own financial or regulatory risk and could be fenced off from the main group if required. The segregated profitable activities will now have more curb appeal to investors and lenders.

To facilitate commercial growth

When opportunities present themselves, such as outward investment by way of an acquisition of a rival or gateway entity into a new geographical marketplace, most structures are not prepared to integrate the new enterprise efficiently. Also, the business may not be able to take advantage of favourable debt funding opportunities based on how current debt is situated within the current structure.

To facilitate an acquisition, owners and management may wish to tailor their structure to receive the new business. If a purchase of trade and assets, a group can be formed and a new subsidiary can be incorporated to receive the business. If an acquisition of a non-UK corporate entity, it can be acquired by a UK holding company to mitigate geographic risk from the core group.

To consolidate business activities

In contrast to segregating business activities, a company or group of associated companies may have out grown its current structure which has a disjointed spread of cost centres, income streams or business assets across different companies. The legal, commercial or tax reasons for the current structure may now be outdated, or in some cases, have been lost over time.

A restructure could be undertaken to consolidate business activities and assets into a streamlined structure therefore making the business activity more efficient and making the business more appealing for inward investment and reducing administrative costs.

To plan for succession

Many companies in Northern Ireland are family-run owner managed businesses which have two or more generations involved in the day to day running of the operations. The shareholding in the company is usually the senior generation’s most significant asset to be left to the next generation. Also, the next generation have usually been closely mentored over the years in all aspects of the business and can become key management and vital for future growth of the business.

A structure can be put in place to facilitate the form and timing of succession with the aim to strike a balance of funding requirements of the current shareholders and commercial readiness of the future generation.

Tax implications

The UK tax implications of a corporate reconstruction are wide ranging and the various transfers of assets can trigger multiple liabilities without careful planning:

  • Income Tax on the transfer of share capital and assets by individuals;
  • Capital Gains Tax on the transfer of share capital by individuals;
  • Corporation Tax on the transfer of share capital and business assets by companies;
  • VAT on the transfer of business assets;
  • Stamp Duty on the transfer of share capital; and,
  • Stamp Duty Land Tax on the transfer of land and buildings.

Most corporate reconstructions are exposed to at least two if not all of the above.

How we can help

UK tax legislation has many reliefs specifically targeted at such reconstructions, which have the potential to make the whole process tax neutral if planned and implemented in the correct way.

Baker Tilly Mooney Moore has significant experience advising owner managed businesses in Northern Ireland on their corporate structure potential. Before a proposed corporate restructure commences, detailed advice is prepared and pre transaction clearances are obtained from HMRC. A client’s legal and professional advisers are coordinated with throughout the implementation stage to ensure a tax efficient process.

Economic events are not uncommon, yet cannot be forecast. More recently, the COVID-19 lockdowns in 2020 have impacted all businesses in Northern Ireland. Business owners and management may wish to review their corporate structure with their immediate and longer term commercial objectives in mind and consider if a corporate restructure could assist in achieving those objectives in a tax efficient manner.

To discuss your own situation please contact Eugene Moore, Tax Manager E: eugenemoore@bakertillymm.co.uk or Tel: 028 9032 3466