How to make a choice between divisionalised and group company structure for planning of tax including the ethics and fundamental principles to be follow by members of a company formation UK

27 Nov

The choice between the divisionalised and group company structure during the planning of tax needs careful consideration once set up limited company companies house. The general principles for this choice will be discuss in this blog along with ethics or the fundamental principles that are required to be followed by a person being a part of a company, business or firm in the formation of UK.

Group Structure or Single Divisionalised Company

In certain scenarios, after ltd company formation UK its operation can be perform through a single divisionalised company or through a group company structure.

The names of the implications while setting up a trading group in the formation of UK are mentioned below:

  • Availability of group relief of losses.
  • Claim for group wide rollover relief may be made.
  • By the appointment of an employee as a director of a subsidiary company, it is convenient to give him a status.
  • The transferring of assets may be done between the group without giving rise to a tax charge.

A number of drawbacks exist as far as the group structure is concerned, whose consideration should be done, specifically when the sale of subsidiaries or the parent companies is to be made. In the case where the parent company is sold out, the group would either sell the group and then purchase back the desired subsidiaries or sell the assets or go for the reconstruction of the group that would need clearances of tax and would cause delays.

In the case where a subsidiary is sold out, this could create a capital gain although there may be an availability of relief for substantial shareholdings.

The primary benefit of a divisional structure is the fact that the total amount of the small profits tax band will be available instead of being divided among all companies that are under one common control.

The other benefits include:

  • Setting off capital gains and losses automatically.
  • Setting off losses in respect of the various divisions automatically.
  • Simplified administration.

On the contrary, mentioned below are some of the disadvantages of a divisional structure:

  • There is a lack of incentive for the divisional directors.
  • For the entire company, it might not be easy to find a prospective buyer.
  • It may be difficult to give equity interest in a venture but the consideration of profit-related bonuses might be done.
  • Group profits can result in the decrement of the possibility of making an optimum use of the small profits rate.

Keeping in view the advantages and disadvantages of the divisional structure and the group company structure, the appropriate choice between these two should be made.

Ethics and the Fundamental Principles

After ltd company formation UK or set up limited company companies house, then there are certain ethical and fundamental principles to be followed by the members as a part of the firm. The members should comply with the regulatory and statutory requirements. There are certain set of code of ethics and conduct that is expected to be follow by members of a company. This section covers the fundamental principles and explains a framework for the application of these principles. As a normal manner, the responsibility of a member will be to an employer or to a client but there can exist scenarios where the action of a member may be required in the interest of public.

General Principles

All of the professional behavior of a member should be underlined by the fundamental principles of ethics.

These fundamental principles include:

  • Integrity: In the professional and business relationships, members are expected to be straightforward and honest. A member should not have an association with information if he thinks that a misleading statement or a false material or recklessly furnished information is present in that information. Also, the information should not be omitted or obscured where this could be misleading.
  • Objectivity: An obligation is impose on the members not to compromise on their business or professional judgement because of a conflict of interest, a bias or the undue influence of others. Relationships that are bias or are influenced unduly by the personal judgement of the member should be refrained from.
  • Due Care and Professional Competence: It is require by the members to maintain a professional knowledge and skill at the level needed to make sure that the employers or the clients acquire competent professional service dependent on the present developments in legislation, practice and techniques and take action in a diligent manner according to the professional and technical standards while providing the professional services. Any limitations related to the provided services should be made clear to the users and clients to make sure that there is no misinterpretation of opinions and facts.
  • Confidentiality: An obligation is impose on the members to avoid disclosing confidential information outside the firm that is obtain as a result of relationships due to professional and business work without specific authority or until it’s a professional or legal right or duty to disclose. The members should also avoid using confidential information as a result of professional and business relationships to the advantage of third parties or the personal advantage. A member should take into consideration the requirement to maintain the confidentiality of information within the firm. The confidentiality of information revealed by a prospective employer or client should also be maintain by the member. The requirement for the maintenance of confidentiality is continue even after the termination of relationships between a member and an employer or a client. When the employment is change by a member or the member acquires a new client, it has the entitlement to make use of prior experience, but not the private information acquired from the previous relationship.
  • Professional Behavior: An obligation is imposed on the member to comply with relevant rules and regulations and refrain from any action that may bring a discredit in the profession. The actions that an third party well knew and informed having a knowledge of all relevant information is included in it, that results in the negative effects on the good reputation of the profession. The members should be honest and truthful and should not make disparaging references or unsubstantiated comparisons to others’ work and also must not make claims that are exaggerated for the services that they are able to offer, the experience that they have gained and their qualifications

Conceptual Framework

A situation may be faced by the member in which he has a particular threat to compliance with the fundamental principles. There are many possible circumstances and instead of trying to specify how every scenario should be dealt with, a conceptual framework is provided that needs the members to make an identification, addressing and evaluation of such threats. The members should apply the precautions to eliminate the threat or reduce it to a level that is acceptable unless an identified threat is clearly insignificant, so that there is no compromise in the compliance of the fundamental principles.

Threats to Members

As soon as the member gets to know or is expected to know about any threat or its existence, it is his duty to make its evaluation. Both the qualitative and quantitative factors should be taken into consideration.

The following categories cover most of the threats to compliance with the fundamental principles:

  • Self Interest Threat: This may arise as a result of the financial interests or other interests of a member or an immediate or a close family member
  • Advocacy Threat: This may arise when a position or opinion is promoted by the member to the point that it leads to a compromise in the subsequent objectivity
  • Threat of Self-Review: This may arise when the re-evaluation of a previous judgement is required by the member who is responsible for that judgement
  • Threats of Intimidation: This may arise when a member is deterred from taking an action objectively by threats, perceived or actual
  • Threats of Familiarity: This may arise when a member has a sympathy to the interests of others because of a close relationship

Preventions for the Elimination of Threats

If the implementation of appropriate preventions cannot be done by a member, then he should discontinue or refuse the particular professional service involved, or resign from the client where required.

There are two main categories of the safeguards that may reduce or finish the threats to a level which is acceptable, as mentioned below:

  • Creation of safeguards by legislation, profession or regulation, such as training and education, professional or regulatory monitoring, continuing professional development and procedures of discipline.
  • Safeguards in the environment of work, for example, effective, well publicized systems of complaints whose operation is carried out by the employing organization. The nature of the applicable safeguards or preventions will differ according to the circumstances. While exercising the personal judgement, it is important that a member must take into consideration what would make an third party that’s well knew and informed, unacceptable having a knowledge of all the related information, that includes the importance of threat and the applied safeguards.

Resolution of Ethical Conflict

There may be a scenario where specific situation leads to a conflict in applying the fundamental principles.

While starting the process of either a formal or informal conflict, five factors should be considered by a member which include:

  • Relevant facts
  • Fundamental principles related to the matter
  • Substitute courses of action
  • Ethical issues
  • Established internal procedures

After taking into consideration the above issues, the determination of an appropriate course of action can be done that resolves the conflict with some or all of the five fundamental principles. Still, if the matter remains unresolved, the consultation should be done by the member with the appropriate persons within the firm who may be asked for help in acquiring a resolution.

With or within an organization, when a matter involves a conflict, the consideration of consulting with those charged with the governance of the organization should also be done.

It is advised to the member that he should make a documentation of the issue that involves the details of any decisions taken or any discussions taken place, related to that issue.

If the resolving of a prominent conflict cannot be done, it may be desired by a member that he acquires the personal advice from legal advisors, in order to acquire guidance on legal and ethical issues without having the need of breaching confidentiality.

After trying all the solutions and exhausting all relevant possibilities, if the case occurs that the conflict of ethics is still not resolved, then wherever it is possible, the member should take special care that he refuses his association with the matter that caused the conflict.

In such circumstances, it may be determined by the member, that it is significant to make a withdrawal from the team of engagement or from specific assignment, or he may also choose to give resignation altogether from the firm or from that particular engagement.

When to disclose information and different factors to be consider will disclosing?

The disclosing of information may be done by a member if the law has permitted the disclosure and the employer or the client has authorized it; if the disclosure in needed by the law such as under the legislation of anti-money laundering; and finally it can be disclosed where there is professional right or duty to make the disclosure, when allowed by the law, for example under the review of quality.

The members should consider the following points when making a decision of whether to disclose the information or not:

  • Whether all the related information is substantiated and known, to the extent that it is practical to do so.
  • Whether all the interests of all parties, in which third parties are also included, could be affected in a harmful way if the client or employer has a consent to disclose the information

The information should only be disclosed under the conditions above and not otherwise.

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