A point in the right direction

clegganator

Hello,

Just picked up a job for Company A who are making a loss, over the last three years total losses are £26k. The owner also has Company B which, we aren't the accountants so I don't know, but would appear is a bit more profitable. Similar sorts of trade, A sells tiles online and B as a shop.

Can B buy the shares in A and use the losses it has been making? What legislation should I turn to for guidance?

groundy

Are there any joint costs eg Rent, wages, insurance that could be recharged from loss making company to profitable company as a management charge?

Monsoon

I don't know enough about one company holding shares in the other to comment on that - I shy away from subsidiaries.

As groundy says, I would look at the management charge route before restructuring the companies.

Also, it's a bit odd to have two different accountants - it's hard to advise on the whole picture when you only have half of it. Unless you can get Co B or liaise properly with the other accountant, I would tread carefully, as you don't know what you don't know in the situation, if that makes sense.

clegganator

The more I think, read and get responses the more questions I think I need to go back and ask the director.

One issue I see with the management charge is that if I wanted to elminate the losses in one year that's one transaction for £30k which would look a bit unusual in the accounts...

Thanks again

groundy

Clegganator - A management charge would only work if there were real expenditure shared rather than an amount dreamed up to write off losses. You would also need to be sure both companies were VAT registered or both werent VAT registered if going down the management charge route.

I have a similar client that has three companies, we act for two and another accountant acts for the third. I have made it clear to this client that we can not best advise him with regards to tax issues as we are not privvy to the accounts of the third company. There are plenty of shared costs with my client but again without knowledge of the other company it is difficult to advise.

deanshepherd

Management charges are fun and can be dressed up in all sorts of guises. My personal favourite is compensation for the director spending more time on the profit-making company than the loss-making one, hence why it made losses. Very commercially justifiable and, if I recall correctly, no VAT to charge so very effective if that is an issue.

Are the director/shareholders the same in each company? If not, then some may object to seeing their loss relief go elsewhere.

Monsoon

deanshepherd wrote: »

My personal favourite is compensation for the director spending more time on the profit-making company than the loss-making one, hence why it made losses. Very commercially justifiable and, if I recall correctly, no VAT to charge so very effective if that is an issue.

That's interesting. Dean, what's the basis for it being non-VATable?

Edit: because it's compensation, not a taxable supply. D'oh...

clegganator

It's all a no go, folks. It's all part of him becoming a little fish in a big pond so he wont have much of say and so is nonviable. Nice hypothetical though!