Running two companies or a group: admin and bookkeeping basics

Running two limited companies means two of everything: bank accounts, sets of books, Companies House accounts, Corporation Tax returns, and VAT and payroll registrations if each needs them. Each company has its own deadlines. Some limits are shared: only one company in a group can claim the Employment Allowance, and Corporation Tax profit limits are reduced for associated companies.

Why do trade firms end up with two companies?

Usually for one of four reasons: a new line of work (design and build alongside a building firm), property held apart from the trading risk, a partner who wants a stake in one part only, or an investor. Each reason is sound. None of them reduces admin.

If one set of books doesn't show whether jobs make money, two sets won't either. Get one company's numbers clear before you start a second.

What admin does each company need?

Everything a single company needs, separately. HMRC and Companies House treat each company as its own taxpayer with its own records.

How do two year ends play out on a calendar?

Two companies with different year ends give you two sets of deadlines a year. Line them up once and put them in the diary.

Do two companies pay less tax?

Not automatically, and sometimes more. Corporation Tax is 19% on profits of £50,000 or less and 25% above £250,000, with marginal relief in between. Those limits are proportionately reduced by the number of associated companies. Two companies under common control share them, so each gets £25,000 and £125,000 instead of £50,000 and £250,000.

The Employment Allowance, which lets eligible employers reduce employer National Insurance by up to £10,500 a year, can be claimed by only one company in a connected group. A company whose only employee on payroll is its sole director can't claim it.

How do you handle costs one company pays for the other?

Invoice them. If Company A pays the yard rent and Company B uses part of it, A charges B its share on an invoice, B pays it, and both sets of books show it. Pick a fair basis (floor space, hours, turnover), write it down and use it every time.

From: Company A Ltd, company number number
To: Company B Ltd, company number number
Invoice number: number   Date: date

Recharge of shared costs for month and year

Shared costs paid by Company A Ltd this month: £total
Basis of split: share of turnover for the last financial year, Company B percent%
Amount due from Company B Ltd: £amount plus VAT if applicable

Payment by bank transfer to Company A Ltd, sort code sort code, account account number, within days days.

How does VAT and CIS work between the two?

Each company registers for VAT on its own turnover. If one company does building work for the other, ordinary rules apply between them. For the construction reverse charge, a company in the same corporate group as the end user counts as connected or linked to it. If it buys construction services and passes them on to that end user without material changes, it can be treated as an end user itself, and the reverse charge doesn't apply once it tells its supplier in writing. See does the reverse charge apply and CIS explained. Splitting a business into two to stay under the VAT threshold needs advice first.

Two companies are a structure your accountant should design with you, and a solicitor should handle any shareholder agreement. This page covers the admin that follows.

Common questions