When you’re in the process of selling a business, there’s the unavoidable process of dealing with tax affairs. Here are two tax considerations to have in place when planning a business exit.

1 - Become tax compliant

A clean tax history will reduce the potential for any price reduction or post-sale retention of proceeds. It also underlines the professionalism and governance within the company. In contrast, having undeclared or undetected tax risks can derail a smooth transaction process.

Recent public and HMRC focus on historic ‘tax avoidance’ schemes has raised awareness and concern among buyers. As a result, the presence of these can limit the range of potential buyers and greatly reduce the price payable for a company on exit, because of both historical cash tax exposure and an increased risk rating with HMRC.

Companies can, however, turn these concerns to their advantage. By electively managing a company’s compliance obligations, it is possible to create additional value on an exit, such as claiming available government sponsored reliefs (e.g. R&D tax relief) or agreeing the transfer pricing of debt with HMRC from the outset to help avoid future queries.

“A clean, clear and compliant tax position will allay any fears your buyer may have about future or historic liabilities.”

It is also important to remember the timeframes within which tax reliefs such as R&D and capital allowances can be claimed. If the buyer can claim these before sale they should do so, but if the opportunities lie with the vendor then the canny seller will know this and make the advantage clear to the prospective purchaser to maximise value.

2 - Seek independent personal tax advice

With so much going on in the approach to a trade sale, it’s easy for owner-managers to overlook fundamental tax matters. For example, while the availability of Entrepreneurs’ Relief is generally well-known, a lack of attention to its detailed conditions can devalue, delay or even prevent a transaction.

Realising the value of a company also brings the protection and diversification of the family wealth into sharp focus. In particular, inheritance tax at 40% becomes an issue as protection by certain business reliefs is no longer available to the company owner, having converted their business interest into cash.

The thoughts of company owners may also turn to new business ventures or property and other investments. Again, considering these at an early stage allows you to structure your wealth in a way that matches your objectives.

Generally speaking, seeking independent guidance from a tax specialist and addressing these tax issues well in advance of a business sale can often benefit company owners.

‍

If you'd like to discuss how Shaw & Co can help you sell, buy or fund the growth of a business, please book a meeting here