Holding Company Insertion: Protecting a Recruitment Business's Cash Reserves

Holding Company Insertion: Protecting a Recruitment Business's Cash Reserves

A husband and wife owned a successful recruitment company that had built up significant cash reserves. The cash sat in the same company as the trade, so a claim or a bad debt could put it at risk. This is how our team moved the cash out of harm's way at no tax cost.

At a glance

• Client: a husband and wife who owned a successful recruitment company
• Concern: significant cash reserves sitting in the trading company, exposed to claims and bad debts
• Route: a new holding company inserted by share-for-share exchange, then surplus cash moved up to it by dividend
• HMRC: advance clearance granted within 3 weeks
• Result: the holding company was inserted with no tax cost, and the cash reserves now sit outside the trading company

The client

The client was a married couple who owned a successful recruitment company. Over the years the business had built up significant cash reserves.

The challenge

The cash and the trade sat in one company. Recruitment businesses can be exposed to claims and bad debts, and if either arose the reserves would be available to meet it.

The couple wanted the cash protected. They wanted this done without a tax cost.

What we did

The project was to insert a new holding company by share-for-share exchange, then move surplus cash up to it by dividend.

• Applied to HMRC for advance clearance first. We prepared the clearance application so the couple knew HMRC's view before they committed to the restructure.
• Prepared an advice report. It set out the tax consequences of each step, so the couple understood what was happening and why.
• Inserted the holding company by share-for-share exchange. The couple became shareholders of the new company, which then owned the recruitment company.
• Worked with the solicitors on the documents. This included the share exchange documents and the stamp duty claim.
• Moved the surplus cash up by dividend. The cash was passed from the trading company to the holding company, where it is no longer exposed to the risks of the trade.
• Ran the job from one rolling agenda. The client, the solicitors and our team all saw the same agenda, which was updated and sent round after each call. The couple always knew where things stood and what we needed from them, and when.

The outcome

• HMRC granted clearance within 3 weeks.
• The holding company was inserted with no tax cost.
• The cash reserves now sit outside the trading company.

Why it matters

Cash that has built up in a trading company is exposed to the same risks as the trade. A holding company puts a layer between the two. Doing it by share-for-share exchange, with clearance in hand, and moving the cash by dividend means the protection can be put in place without creating a tax charge along the way.

To find out more, see our page on the holding company, or book a call with our team.