A group structure makes sense when each company has a clear job to do. That might be separating distinct businesses, keeping property or cash apart from trading risk, allowing different people to own different parts, or preparing one part for sale. It makes much less sense when companies exist mainly because of history, or were set up for a single tax idea that no longer holds.
Every extra company brings extra accounts, filings, bank accounts and intercompany transactions. A group is worth having when the benefits are clearly greater than that cost.
What counts as a group?
In everyday use, a group is a parent company that owns one or more subsidiaries. The parent is often a holding company that does not trade itself. When Does a Business Need a Holding Company? covers that first step.
For tax and accounting purposes, "group" means different things in different contexts:
- Group relief for corporation tax losses needs a 75% relationship: one company must own at least 75% of the other's ordinary share capital, directly or indirectly, or both must be 75% owned by a third company.
- Group accounts depend on the parent and subsidiary relationships defined in company law, which are based on control.
- VAT grouping is available to UK companies under common control, using its own definition.
- Associated companies, which share the corporation tax rate thresholds, include companies under common control even when neither owns the other.
That last point matters for owners who hold several companies personally. Two companies owned by the same person are not a group in the legal sense, but they are usually associated for corporation tax.
What do common structures look like?
- A holding company with one trading subsidiary. Often set up to hold surplus cash or prepare for future plans.
- A holding company with several trading subsidiaries. Each business is kept separate but owned in one place.
- A separate property company. Property used by the business is held apart from the trading company, either within the group or owned directly.
- Sister companies. Several companies owned directly by the same people, with no parent above them. This often grows up over time rather than being planned.
When does a group make sense?
- Genuinely different businesses. Different markets, risks or management, where combining them in one company would confuse the picture or tie their risks together.
- Different owners for different parts. A manager or partner who should own a share of one business but not the others.
- A likely future sale of one business, where having it in its own company is simpler.
- Acquisitions. Buying another company's shares naturally creates a subsidiary.
- Assets you want held separately, such as property, where there is a sound commercial reason and the tax cost of moving them is understood.
When does it not make sense?
- Splitting one business to reduce tax. The associated companies rules divide the £50,000 and £250,000 corporation tax thresholds between companies under common control, so splitting profits across companies often does not produce the saving people expect.
- Companies kept "just in case". Dormant or near-dormant companies still need filings and attention.
- Complexity nobody can see through. If you cannot tell how the group is doing overall without adding up several sets of accounts, the structure is costing you clarity.
What does running a group well involve?
- Intercompany balances that agree. What one company says it owes another should match on both sides, every month, not just at the year end.
- Proper basis for charges between companies. Management charges, rent and recharges should be agreed, documented and invoiced. VAT on them needs checking.
- Group relief and other claims made where they are available, with the conditions checked.
- A decision on VAT grouping. Companies in a VAT group submit one return, and supplies between members are generally disregarded for VAT. That can simplify things, but all members become jointly and severally liable for the group's VAT, so it is not automatically the right choice.
- Group accounts, where required. A parent company must usually prepare group accounts, but small groups can choose not to. For financial years starting on or after 6 April 2025, a group is small if it meets two of: turnover of no more than £15 million net (£18 million gross), a balance sheet total of no more than £7.5 million net (£9 million gross), and no more than 50 employees.
- A combined view for management. Even where group accounts are not required, the owner usually needs to see the whole group: combined profit, cash across all companies, and what is owed between them.
That last point is where many groups struggle. Each company's accounts can be correct while nobody has a clear view of the whole. Financial Clarity explains how we approach reporting for groups.
Can a group be simplified later?
Yes. Companies can be closed, merged or moved within a structure. Each route has its own tax and legal steps, so it is worth planning rather than simply striking off companies that are no longer used. Check whether a company still holds assets, balances or liabilities before anything is closed.
What should you think about before creating a group?
- What is each company for, and would the business be worse off without it?
- How will money move between the companies, and on what basis?
- What will the extra accounts, filings and bank accounts cost each year?
- How will you see the group as a whole?
- What do your bank, lenders and any investors need?
- What legal documents are needed? A solicitor should be involved in share transfers, reorganisations and agreements between shareholders.
The short answer
A group makes sense when the structure reflects how the business actually works and where it is going. Set it up for a clear reason, keep the intercompany side tidy and make sure you can see the whole picture. Otherwise, a simpler structure is usually better.
Groups & Company Structures sets out how we work with groups and businesses with more than one company, and Accounting covers the accounts and tax work for each company. If the structure involves new or changing shareholders, see Changing Shareholders or Share Structure.