Adding Considerable Value -
Early Tax Advice
Early tax advice in conjunction with a proposed business disposal has the power to add considerable value for the seller, particularly when it comes from an experienced practitioner with an instinct for creative planning.
As well as ensuring that nothing worse than a minimum “expected” level of tax is suffered on the sale and the seller doesn’t go forward with unacceptable tax risk, a pre-sale review undertaken early on in the process can often beat that expectation by tens of thousands of pounds.
Furthermore, being ahead of negotiations can help to ensure that a sale structure which suits the seller does not become difficult (or impossible) to achieve simply because the dialogue and the paperwork have already moved on beyond a point where the other side is willing to cooperate with any revised plans.
Take just one very simple example of structure planning which can feature quite regularly in business sales:
The business owner, Mr Sell, agrees to stay on for a period of transition after the sale. This is usually to help make sure that his successor, Mrs Buy, can get phased into key relationships and everything she needs to know, with the best ongoing direction and assistance. Mr Sell might be fully motivated to work hard during this transition period, of course, because it helps him to achieve his own “earn-out” arrangements in the deal, but, at the same time, he might reasonably expect a commercial salary for his ongoing efforts – let’s say the parties agree £100,000 per annum for two years. All perfectly reasonable and commercial.
But what if we can then persuade the buyer to revise the plan so that Mr Sell stays on for, say, just £30,000 salary per annum with the other £70,000 per annum added to the consideration for his shares, instead:
Using 2018/19 rates and allowances the original plan would have involved Mr Sell suffering total Income Tax and Employee’s National Insurance of circa £34,000 assuming Mr Sell has no other sources of income (in practice he probably will have other sources and this tax cost will be materially higher).
The revised solution would involve just £20,000 of Income Tax, National Insurance and Capital Gains Tax – a saving of £14,000 achieved as a by-product of a tax review which is principally designed to achieve other, bigger purposes.