Selling Your Business for its Maximum Value

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  • 1. Selling Your Business For Its Maximum Value A Presentation by Paul McKay and Dave Wilson

2. Selling Your Business for Maximum Value Booth Ainsworth and SAS Daniels LLP Minimise Your Tax Bill Background Tax Rates Personal Capital gains tax 18%, but attractive rates for disposal of business assets Entrepreneurs Relief 10% a life time gains of 2m Government have indicated that the rates for sale of business assets will remain attractive Income Tax 40% on incomes of 37,400 to 150,000 but note 60% bond 50% on incomes over 150,000 Corporate 21% on profits up to 300,000 29.75% on profits between 300,000 and 1.5m 280% on profits over 1.5m 3. Selling Your Business for Maximum Value Booth Ainsworth and SAS Daniels LLP Minimise Your Tax Billcontd Tax Rates The Implications Sell the company capital gain tax rate 1% / 18% Company sell the assets corporation tax at 21% / 29.75% / 28% But then how do you extract the post tax profits Dividends, tax costs 25% (40%) 36.11% (50%) Giving an effective accurate tax rate of 40.75% - 54.00% Liquidate the company, giving rise to a capital gain, tax cost 10% / 18% Giving an effective accurate tax rate of 29% - 37% 4. Selling Your Business for Maximum Value Booth Ainsworth and SAS Daniels LLP Minimise Your Tax Billcontd Sell The Company / Sell The Trade And Assets Tension between the need of the purchaser / vendor Typically purchaser will want to buy the assets - Enhanced capital allowances - Tax relief for acquired goodwill - No history Vendor will want to sell the company Result; a horse trade but need to understand the issues 5. Selling Your Business for Maximum Value Booth Ainsworth and SAS Daniels LLP Minimise Your Tax Billcontd If a fixed part of the consideration is deferred the final amount is taxed (capital gains) in the year the contract is finalised Same rule applies if the consideration is conditional upon a specific event Cash flow issues Computation only adjusted if part of the consideration becomes irrecoverable Deferred Consideration (Share Sale) 6. Selling Your Business for Maximum Value Booth Ainsworth and SAS Daniels LLP Minimise Your Tax Billcontd Earn Outs Typical structure - Fixed sum on completion - Further sum based on a formula e.g. share of profits for next three years - Continues as an employee for next three years Tax treatment of the earn out element - Unquantifiable further sum regarded as a chore in action - Value of the choice in action treated as part of the consideration for the share - Gain qualifies for Entrepreneur's Relief - Further gain when receive referred consideration - But no Entrepreneurs Relief - Care needs to be taken to avoid characterising the referred element as some form of bonus, since HMRC may sell to tax as employment income 7. Selling Your Business for Maximum Value Booth Ainsworth and SAS Daniels LLP Minimise Your Tax Billcontd Consideration In Shares Share for share rules means that the capital gain on the disposal can usually be deferred New shares treated as being acquired at the same time, and same amount as the old shares Election can be made to opt out of the share exchange rates This means that the benefit of Entrepreneur's Relief can be booked When part case, part shares, consideration pro-rated But consider the cash flow issue 8. Selling Your Business for Maximum Value Booth Ainsworth and SAS Daniels LLP Minimise Your Tax Billcontd Due Diligence Will look at the campaign tax affairs; - Corporation Tax - VAT - PAYE/NIC for the last 6 years Benefit of good housekeeping Warranties of identities(?)