Is a holding company worth it?

Because the question it answers is how to get surplus cash out of the trading company's risk. Without a holding company, the only way to do that is to pay it to yourself as a dividend and pay income tax on it. You could leave the cash in the trading company instead, but then it stays within reach of the company's creditors and, if it builds up, can weaken the trading status that BADR and Business Relief depend on.

Mostly not. The saving comes from not paying dividend tax on the surplus you don't need, so it's a deferral. If the holding company later pays the cash out to you as dividends, income tax is due then, at the rates in force at the time. The deferral is still valuable: the full amount can be reinvested in the meantime. Some of the gap may never be taxed, depending on how and when the money eventually leaves.

Because a holding company that keeps cash is an associated company of the trading company. Each company's corporation tax limits then halve, from £50,000 and £250,000 to £25,000 and £125,000. With profits between £25,000 and £250,000, the trading company pays more marginal rate tax, or the full 25%, than it would alone. Below £25,000 or above £250,000 the extra corporation tax is nil, because the rate is the same either way.

After. The calculator charges corporation tax on the profit figure you enter and doesn't deduct your salary from it, so enter the taxable profit once your salary and other costs have been paid. The salary box is used only for your personal tax: it fills your personal allowance and tax bands before your dividends are taxed. If you have other income, such as rent or a pension, you can add it to the salary figure.

It's the profit left in the group after corporation tax and after the dividends you take personally. In the holding company version, that cash moves up to the holding company as an exempt dividend, so it's no longer an asset of the trading company and is out of reach of the trading company's creditors. The dividend has to be paid lawfully, out of the trading company's distributable profits, and well before any financial difficulty.

If what you take out each year is equal to or more than the profit left after corporation tax, there's no surplus to keep in a holding company. The calculator then shows £0 and says so. In that case a holding company doesn't help with cash protection, though it may still matter for other plans, such as buying a property, starting a second business or preparing for a sale. Try a lower figure to see where the surplus begins.

It treats your salary as the first slice of your income and puts your dividends on top. The personal allowance of £12,570 is used first, and it's reduced by £1 for every £2 of income above £100,000. The first £500 of dividends is taxed at 0% but still uses up its band. The rest is taxed at 10.75% in the basic rate band, 35.75% above £50,270 and 39.35% above £125,140.

They're measured at different points. The holding company figure is cash still inside the company, before any personal tax. The personal figure is what you'd have left after paying dividend tax on all the profit and setting aside what you need to live on. Much of the difference is income tax you haven't yet paid, which falls due if the holding company later pays the money out to you as dividends.

No. The 'kept after' figures simply multiply one year's surplus by the number of years, with no interest or investment returns. In practice the holding company would pay corporation tax on its interest and investment income, and you'd pay tax on any investment growth held personally. Because more cash stays invested in the company version, growth usually widens the gap, but the calculator leaves it out to keep the comparison clear.

It's built for one shareholder. With two, two sets of allowances and tax bands are available, so the personal tax in the version without a holding company is overstated. To get a feel for each person's dividend tax, you can run it with each shareholder's share of the profit and of what they need, but the corporation tax figures in those runs won't be right, because the company pays tax on its whole profit.

A holding company escapes association only if it's passive under s18F CTA 2010: no assets other than shares in its subsidiaries, no income other than dividends, all those dividends paid on to its shareholders, and no gains or management expenses. A holding company that keeps the surplus cash fails the first and third conditions, so the calculator assumes it's associated and halves the corporation tax limits. That's the realistic case for this comparison.

No. It's set for a shareholder in England, Wales or Northern Ireland. Dividends are taxed at the same rates and bands across the UK, so for a Scottish shareholder with a small salary the dividend figures are close. Scottish rates and bands apply to salary and other non-savings income, which changes the tax on a larger salary and how much of the basic rate band is left for dividends.

It leaves out the costs of setting up the holding company and running it, such as accounts and filings for an extra company, and any tax on its investment income. It also ignores National Insurance on your salary. If the holding company makes management charges to the trading company, VAT and corporation tax on those charges come into play too. Those amounts are usually modest against a large yearly surplus, but they matter at lower profit levels.

Because a group is judged as one business. BADR on a sale of your holding company shares needs a trading group, and HMRC treat non-trading activity above about 20% as substantial. Business Relief from inheritance tax can exclude cash not needed for the business as an excepted asset. Moving cash into the holding company protects it from trading risk, but it doesn't take it out of these tests, so large balances need a plan for how they're used.

Choose the period until you expect something to change, such as a sale, retirement or the next generation taking over. The calculator accepts 1 to 40 years and multiplies one year's figures by that number, assuming steady profits and the same withdrawals each year. It doesn't change rates over time or add investment growth, so for long periods treat the totals as a sense of scale rather than a forecast.