Essential Accounting Entries in Corporate Restructures
- Omar Aswat
- Jun 26, 2025
- 4 min read
Updated: Dec 22, 2025
Accounting entries in corporate restructures are vital for ensuring accurate reporting and compliance with UK accounting standards. Whether your business is going through a merger, acquisition, capital reduction or asset transfer, the way these entries are recorded can significantly impact your financial statements.
In this guide, we’ll break down five essential accounting treatments every advisor, accountant and business owner should understand.
Table of Contents
Share-for-Share Exchange
A Share for Share Exchange typically occurs when one company exchanges its shares for the shares of another company. As a result, this often leads to one company taking control of another or forming a joint venture.
📘 Example:
A holding company ("HoldCo") acquires 100% of a trading company ("TradeCo") by issuing £100 worth of shares.
Key Points:
The share exchange entry needs to reflect the fair value of the shares issued and received. Often, a share exchange involves a combination of cash and shares, requiring careful valuation of both.
There is no entry in the books of the subsidiary — only a change in ownership, not financial position
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Dividends Paid from Subsidiary to Holding Company
Dividends are commonly used for cash extraction within group structures. In addition, they help parent companies consolidate cash flow efficiently. In the UK, intra-group dividends are generally tax-free, but must still be recorded accurately to reflect the flow of funds up the corporate structure. This is a common occurrence in corporate restructures where the parent company wishes to consolidate its cash flow.
Example:
TradeCo pays a £500,000 dividend to HoldCo.
Subsidiary (TradeCo):
Holding Company (HoldCo):
🧠 Tip: Ensure sufficient retained earnings exist in the subsidiary to avoid illegal dividends.
Key Point: The accounting treatment for dividends paid to a parent company follows standard dividend accounting. However, if the parent holds a controlling interest in the subsidiary, the transaction should be eliminated in the consolidated financial statements.
Capital Reduction Demerger
In a capital reduction or demerger, a company reduces its share capital, often distributing part of its assets or liabilities to shareholders. A demerger involves separating a business unit, transferring assets and liabilities to a new entity.
📘 Example:
Company reduces £250,000 of share capital and transfers assets of equivalent value to a new company.
Company Reducing Capital:
Once assets are transferred:
Receiving Company:
🧠 Tip: Proper documentation and accounting reduce audit risks and ensure alignment with Companies House filings.
Key Point: The capital reduction or demerger may result in a revaluation of the company’s assets, and any gains or losses will need to be recognised. This restructuring also impacts the company’s financial ratios and overall capital structure.
Curious about how to split your business tax-efficiently?
Learn more about capital reduction business demergers and how they can support your restructuring goals.
Transfer of Assets (Hive-Up or Hive-Down)
This involves transferring assets within a group, either upward (subsidiary to parent) or downward (parent to subsidiary). It is a key aspect of many corporate restructures and can happen in the context of an asset sale, an internal reorganisation, or a transfer of ownership of certain business units or subsidiaries.
📘 Example:
A subsidiary hives up £200,000 of assets to HoldCo.
Subsidiary (TradeCo):
Holding Company (HoldCo):
🧠 Note: Assets transferred at book value typically result in no gain/loss unless third-party valuation is involved.
Loan Capitalisation into Equity
When an existing director or shareholder loan is converted into equity, it can simplify the balance sheet and improve financial ratios.
📘 Example:
£150,000 loan from director is converted to equity.
🧠 Why it matters: This avoids future interest liabilities and may be preferable to dividend extraction from a tax planning perspective.
Final Thoughts
Whether you're exploring a capital reduction demerger or looking to form a holding company for structural advantages, it's vital to get the accounting right. Check out our detailed guides on Capital Reduction Business Demergers and Holding Company Benefits to deepen your understanding.
Every restructure is unique. At ASWATAX, we understand that one-size-fits-all solutions rarely work in the real world. Our expert team provides customised advice to match your specific needs, ensuring that your accounting entries align with your business goals and strategic objectives.
Meet Omar Omar is a Chartered Tax Advisor (a.k.a an expert on tax issues) and founder of ASWATAX. He regularly shares his knowledge and best advice here in his blog and on other channels such as LinkedIn. Book a call today to learn more about what Omar and ASWATAX can do for you.
*Disclaimer: ASWATAX is a firm of Chartered Tax Advisors, and we strive to provide accurate, up-to-date tax insights. Tax laws may change, so this content is for general guidance only and not a substitute for professional advice. Seek independent tax and legal counsel before making decisions. ASWATAX is not liable for any loss from reliance on this information. Use at your own risk.
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