Can I run multiple businesses under one limited company?
Fortunately for contractors, it is possible to run multiple businesses under one limited company. Whether this is a good choice of business structure or not depends on the circumstances, needs and requirements of the shareholders, however, writes Eloise Brown, senior tax knowledge manager at chartered accountancy firm Moore Kingston Smith.
From a tax perspective, the most important factor is likely to be the ability for a future disposal to be eligible for the favourable 10% Business Asset Disposal Relief (BADR) rate.
Factor in your BADR eligibility
BADR is available on lifetime gains of up to £1 million on disposals of qualifying business assets held for at least 24 months at the time of disposal. BADR may also be available on winding up of the company, with some differences in the qualifying conditions.
A trading condition must be met for both sales and on winding up, and so any non-trading activities (property investment, for instance) would be likely to taint the company’s qualifying status for BADR purposes. In such cases, a separate company should be established to hold the investment activities.
But be aware if more than one business is run through one limited company, and one trade or division is sold rather than all of the company’s shares, any resulting gain would be subject to corporation tax at 19% without any preliminary and more complicated tax planning measures.
Additional tax considerations
There are a number of other tax consequences of running multiple businesses under one limited company, such as the way in which tax relief is obtained for losses. Where businesses are run through separate companies, companies must claim and surrender ‘group relief’ where there are losses in one or more group companies and profits in others.
Depending on the amounts and types of profits and losses involved, in some cases profits may not be able to be reduced by losses. For a single company with multiple businesses, loss relief is simpler and more efficient.
Simplicity, separation and subsidiary ownership
In addition to the tax implications noted above, there are likely to be legal, practical and commercial factors for contractors to take into account. For instance, it may be cheaper and simpler to operate a single multi-trade company as there will be fewer reporting and administrative requirements. However, there may be legal, regulatory or commercial constraints which dictate that separate companies are required for each business.
To give an example, if any of the businesses are commercially ‘high risk,’ then it would usually be advisable to run it through a separate legal entity. Otherwise, in the event of the high risk business failing, the assets of a multi-business company (including the assets of profitable trades), are at risk of being required to repay the failing business’s creditors.
A final consideration is that if it is decided that different businesses should be run from separate companies, there is then the question of whether to insert a group holding company to own the various subsidiaries, or whether the individual shareholder should own the companies directly. There are yet again many factors to consider and expert advice should be sought, ideally before taking any action, to avoid costly or time-consuming mistakes.