EVENTS

S&W Sessions: Key tax considerations for M&A

  • Date: 10 Jul 2019
  • Time: 09:30 - 10:30
  • Venue: Webinar, hosted via webex, join from any location, use the link below

S&W Sessions are a regular series of thought provoking hot topic webinars that are relevant to your business.

View the webinar below to listen to our tax experts discuss the various elements of merger and acquisition transactions, as well as current trends in this space. This webinar provides you with key takeaways that you can apply to current transactions or that will be helpful when planning future ones.

The webinar touches upon the following

  • Preparing for an exit or sale
  • Acquisitions
  • M&A considerations
  • Key takeaways
  • How can we help?

Overview

Is your structure ready for exit?

Things to consider:

  • Investors will want to invest in business in its entirety
  • Shareholders should consider keeping separate non-core trades/ assets
  • Should the shareholder restructure pre-investment? Share for share exchange or demerger may be beneficial

Why you should avoid tax schemes

  • Inconvenience - HMRC can pursue tax schemes with vigour for years
  • Reputational damage - Think about Starbucks. Business can suffer reputational loss with tax scheme
  • Cost - Apart from scheme fees, there will be interest and possibly penalties if HMRC prevail
  • Problems with exits - Due diligence will pick up schemes entered into by the company. Cash possibly retained on exit, or deal pulled

Readiness for exit- is your house in order?

  • Ensure tax filings are up to date & correct
  • Deal with any outstanding tax issues - undertake tax health check  - PAYE, VAT
  • Maximise tax assets to improve earnings - R&D, patent box, EMI, capital allowances
  • Potential impact of tax issues arising on due dilligence:
    • Reduce purchase price
    • Higher tax cost on exit
    • Risk of delay/ transaction falling over
    • Increased warranties and indemnities for current owners
    • Higher professional advisor fees

Timely preparation of tax DD file is best practice.

Tax DD hot topics

  • Corporate Tax
    • Transfer Pricing - new profit fragmentation rules
    • Corporate Criminal Offence (CCO)
    • Under/ over states R&D and patent box claims
    • Availability of losses post deal
    • Implications of earlier reorganisations
    • Deferred tax considered
  • VAT
    • Making Tax Digital- from 1 April 2019
    • Reverse charge - domestic and overseas
    • Overseas registration obligations
    • VAT liability of supplies
    • Partial exemption
    • Option to tax
  • Employment Tax
    • Contractor Status- rule changes under IR35
    • Short Term Business Visitors - high risk and of recent HMRC interest
    • Termination payments- planned and recent changes to tax/NIC treatment
    • Eligibility of EMI and other share schemes

Employee shares and income

  • Tax legislation assumes that all shares held by employees are employment-related
  • Shares with restrictions can cause significant tax issues on a sale. Nearly all shares in private companies will be restricted
  • Implications of entering into section 431 tax elections within 14 days of issue
  • Annual reporting by employers

Source: HMRC 2019/20

Entrepreneurs' Relief - £10,000,000 per person

  • 10% tax rate and a £10 million lifetime allowance per person
  • Key tests that must be met throughout the 24 month period prior to a sale:
    • Trading company or group
    • A director or employee with 5% shareholding with voting rights
    • Individual must be beneficially entitled to either:
      • 5% of profits and assets available for distribution to equity holders on a winding up of the company or
      • 5% of the sale proceeds had the whole of the ordinary share capital of the company been sold on the day of the disposal
    • Relaxation of rules for EMI option holders

Recommendations

  • Health check review well in advance of any sale: Check share capital structure- are there different share classes?
  • Share transfers between spouses to capture both lifetime allowance (2 x £10m)
  • Do trusts hold shares? (Should family trusts hold shares?)
  • Check group structures and 80/20 tests
  • Confirm that the gain will be subject to capital gains tax in the first place!

Share or asset deal?

Share purchase

  • Generally preferred by seller
  • Buyer inherits tax history of the target
  • VAT exempt
  • Note VAT recovery of transaction costs

Asset purchase

  • Generally preferred by purchaser
  • Tax history generally left in seller's entity
  • Tax deduction may be available on intangible assets acquired
  • Subject to VAT - unless qualifies as VAT-free 'Transfer of Going Concern'
  • Note Capital Goods Scheme position transfers
  • No Stamp Duty subject to potential SDLT on land and property

The DD process

Scope

  • High level or full scope?
  • WI insurance
  • Non UK entities and considerations

Stages

  • Information request 
  • Tax review
  • Further enquiry
  • Qualify and quantify task risks

Protection

  • Inclusion of appropriate warranties and indeminities

Communicate findings

  • Discuss findings with management
  • Consider commercial impact and negotiation

Post acquisition considerations

  • VAT recovery of transaction costs
  • Preservation of brought forward losses in acquire group
  • Sharing tax losses and attributes going forward
  • Update transfer pricing
  • Tax efficient entity simplification
  • Review and update internal policies that may impact tax
  • Review and update relevant HMRC agreements and obligations (SAO, CCO etc)

Key takeaways

  • Prepare well ahead of planned exist
  • Ensure appropriately scoped Tax DD with specialist advisors
  • Maximise tax efficiencies post deal
  • Speak to S&W

 

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