Acquisitions and disposals

Business acquisitions are structured as either company share purchases or direct acquisitions of trade and assets. Typically, a share disposal is more tax advantageous to a Seller whereas a Purchaser may prefer a trade and asset purchase without acquiring any inherent risks a trading company will hold.

A trade and asset purchase can be more straightforward from a tax perspective, although some tax matters will need to be considered, such as the capital allowance and VAT status of assets used in the trade.

On the acquisition of a company it is important to understand the tax attributes and inherent liabilities being acquired. Tax due diligence work provides assurance on key aspects or identifies where key tax exposures arise. Some key areas can include tax issues around the issue of shares and options to employees, IR35 concerns with sub-contractors, previous group reorganisations, validity of tax claims such as R and D tax relief and capital allowances, availability and utilisation of tax losses, VAT treatment of income, tax residency or other international matters

Further protection can be provided within the Tax Warranties and Tax Covenant part of the Share Purchase Agreement, and it is important to ensure that they are suitably worded to cover key issues identified in the due diligence process

The Purchaser may also require advice to ensure that they are structuring the acquisition in the most efficient way.

This can include for example;

• Funding advice, debt vs equity
• Consideration of future use of existing tax losses in acquired vehicle
• Post acquisition structuring, such as hiving the existing assets out of the acquired vehicle and the tax consequences of this

All businesses owners will at some point exit but the methods and options are numerous and varied.   Businesses may be sold to third parties or perhaps moved down generations or passed to the management or the employees all of which will incur tax on selling a business which we can help mitigate.  Alternatively, the business may cease and for companies they may be liquidated to extract any assets back to the shareholders.  Businesses should have a clear succession and exit plan, which of course may need to be adapted over time as circumstances change, but will enable the business to plan ahead in respect of both commercial elements and the tax implications of selling a business outlined in this plan. In all scenarios the shareholders will want to ensure that they maximise value. Where consideration is received this can be taxed in different ways depending on how it is structured. Some examples are set out below;

• On retirement an exiting shareholder can sell their shares back to the company, by means of a purchase of own shares. However, this can be treated as either a capital receipt or an income distribution depending on the precise detail of the exit
• Third party sales often build in an element of ‘earn out’ In some cases this can be taxed as employment income rather than a capital receipt for the disposal of the shares
• Involving employees can be key to driving the value of the business and assisting with eventual succession. Tax efficient employment equity schemes such as EMI can be a key part of this
• Some businesses may prosper from being sold into a trust for the benefit of all employees. Such an exit can potentially be achieved on a tax free basis by the exiting shareholder but there are detailed rules to be met
• A management buy out  is a way of passing the business to key individuals, but needs to be structured carefully to ensure a tax efficient exit for the shareholders and that no employment benefit charges arise for the employees
• Even a liquidation of the business as a means of extracting value out to the shareholders can have tax complexity. This includes the consideration of so called anti-phoenixing rules which can act to convert any capital receipts into income distributions

Business owners require clear and practical guidance, ranging from a tax health check to ensure that they have everything ready for when they are ready to exit, to transactional advice as to how to structure their exit effectively, to reviewing the tax on the sale of a business and  transaction documents to ensure that there are no unexpected surprises.