Corporate Simplification

Entities are often found in corporate groups that are surplus to requirements; these may have been dormant for some years or replicate activities of other entities. Corporate simplification is the process of removing unnecessary layers (of one or more companies) from a corporate structure.

The benefits of a corporate simplification exercise can include:

• a reduced corporation tax liability
• a reduced administrative burden
• the release of capital, allowing funds to be diverted to profitable business areas.

From April 2023, corporation tax rates are rising to a maximum of 25%. The rate paid being determined in part by the number of companies in a group. A corporate simplification process may assist in reducing a group’s tax burden.

The removal of surplus entities from a group structure can also reduce the administrative burden for compliance and regulatory reporting, as well as for filing statutory accounts and confirmation statements (which will no longer be required to be filed with the Registrar of Companies). Additionally, the need to prepare and make corporation tax and VAT filings come to an end. It is estimated that each dormant entity typically has an administrative cost (direct and indirect) of between £5,000 and £10,000 per annum. A simplification process removes those costs.

Surplus entities can be wound down in the most tax efficient way by use of a solvent liquidation process, known as a Members’ Voluntary Liquidation (MVL) or by dissolution. While an MVL is more expensive than dissolution, the MVL process provides comfort that a statutory process of advertising for creditor claims, realising assets and distributing any surplus to the shareholder(s) has been followed. Further information on MVL can be found here.

Managing Risk and Efficiency

We work with the management and shareholders to achieve the objective of the simplification process, undertaking a project management role if required and identifying the risks. There are many benefits of using a licensed Insolvency Practitioner to help with the simplification.

• Improvements across the group in respect of transparency, corporate governance and accountability.
• Certainty in respect of liabilities following a due diligence exercise.
• The group has a structure that is streamlined and easy to understand.
• There is a return of share capital and assets, a release of inter-company balances and a better flow of dividends paid.
• Elimination of replication of activities across group companies.
• A reduction in transactional costs when refinancing or dealing with corporate change.
• Eases tax planning and exit planning.

We have a flexible fee structure, which can be aligned to the level of our involvement in the project. If the simplification exercise concerns a number of entities, because of economies of scale, the cost of removal of each individual entity is likely to reduce.

We have broad industry expertise and can draw upon our restructuring and tax teams in the UK and in other jurisdictions, across 146 countries worldwide.

How Crowe can help

At Crowe, we have a team of experienced and licensed Insolvency Practitioners who can advise you on the best course of action, depending on your business’s circumstances. Please get in touch with either Steven Edwards or Vince Green who are licensed Insolvency Practitioners, or your usual Crowe contact.