Demerging Your Business Without The Tax Headache.

Date: 20/11/18

From time to time, it makes sense for a company operating in different markets or offering a range of services, to split into separate business operations. For example, a general office supplies company may find itself developing specialist skills in the education sector and wish to grow this separately from the original business.

It would initially appear that the demerger will result in hefty tax bills with the value of the transferred trade counting as a taxable dividend for the original company’s shareholders. The good news is that this can legitimately be avoided.

HMRC caters for this situation with its demerger provisions, allowing businesses to split into separate companies tax efficiently – but not if the demerger is with a view to selling one of the companies to new owners. As long as the conditions laid down by HMRC are met, the value of the trade transferred is exempted and there is no tax to be paid by the shareholders.

Such a demerger takes careful planning as well as clearance from HMRC. It is a complex process and it is important to seek specialist advice before going ahead. If you are considering a demerger, our specialist team will be happy to advise you. Just call us on 01524 67111 to set up a meeting at your premises or in our Lancaster office.


Tim Preece FCCA

Author: Tim Preece FCCA

A former pupil at Lancaster Royal Grammar School, Tim joined Scott & Wilkinson in 1992 as a trainee after completing a degree in Maths and Economics at Leeds University and qualified as an Accountant in 1996. Tim was...

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