Tax in the UK is generally decided according to the type of goods or services you’re providing, and not the type of company that runs it. In essence, if you set up a for-profit limited company that trades in taxable products, you will pay VAT on your sales and Corporation Tax on your company, even if it has branches abroad. Creating a subsidiary can be useful for splitting up the management of your activities, but if they’re still commercial operations then they won’t save you anything in tax. If the subsidiary is a charity, then these rules don’t apply.
So, in terms of tax, can two businesses with the same owner be separated?
If both the businesses are incorporated, they should have completely separate accounts and their tax bills will therefore also be separate. In such circumstances it would be possible for one company to make a profit while the other makes a loss, or for the two companies to trade or lend between themselves. The fact that they share an owner will be irrelevant for tax purposes, and the owner’s personal tax position will be separate from those of the companies.
However, if one person is running two unincorporated companies, either as a sole trader or an ordinary partnership, the situation is slightly different. These companies are not legal entities, and so the owner’s tax return will combine the profits or losses of both companies into a single taxable amount. Nevertheless, this wouldn’t prevent the businesses from keeping separate accounts.
So if you want this kind of set up, there are a number of things you should know. There are two basic types of holding company: pure and mixed.
A pure holding company is created if the only purpose is to maintain controlling stakes in one or more subsidiaries, but to undertake no other activity. If you have a number of different international offices or branches, for example, which are each companies in their own right, then a pure holding company will enable you to unify their ownership.
A mixed holding company, also known as a holding-operating company, can maintain stakes in subsidiaries like a pure holding company, but can also engage in other business activities. This is useful where you want to use the holding company to operate like a head office, financing parts of the business group and supplying management or support services.
A common concern is whether you need an actual address for the new business. When you register a new business with Companies House, you need to provide them with an address at which documents can be served. However, this does not have to be the physical location where you do business.
It’s acceptable to use a Royal Mail PO Box address. There are also many private services that offer the use of their premises for your registered business address, and which will forward your mail to you.
If you’re a sole trader or a member of a general partnership, you don’t need to make your business address public. However, you will still need to give HMRC an address so they can send you a tax return.