Transactions advisory

When undertaking any significant business transaction, whether issuing finance, purchasing another business or selling a company, tax is an important part.

Our Transactions Tax team covers all relevant taxes and is experienced in all parts of mergers and acquisitions process on both sides of a transaction.

Transactions Advisory

How we can help

Tax is important in all stages of a transaction and in our experience, getting the tax team involved early can lead to a smoother run process, with less overall risk and increased legal protection. The Smith & Williamson Tax Transactions team focuses on the following aspects of an M&A process:

Modelling – tax can significantly affect the final valuation of a business, depending on the valuation model used. Tax assumptions may be hitting the above-the-line numbers or the model may include a cash tax liability that is based upon a significant number of complex assumptions spanning at least five years.

Our team can review any tax assumptions and historical financial information to ensure that the tax balance included in the enterprise value calculation is reasonable.

For the individual shareholders, modelling the tax profile of offers received and continuing to model the tax position throughout the transaction process helps them to determine their net-of-tax proceeds. This enables them to plan their future personal finances with greater certainty.

Our team can help individuals to decide if any pre-transaction planning is required in relation to their personal shareholding or wider personal finances.

Due diligence – it is important to understand what potential UK and global tax liabilities and assets exist in a business. This allows a purchaser to obtain price adjustments upfront or through completion accounts, to get appropriate contractual protection and to understand the tax requirements of the business from day one of ownership.

Vendor due diligence is essential to allow a company and its owners to gather all pertinent tax information and understand and plan for any tax issues that may form part of the deal negotiation before a transaction begins.

Our team prepares full due diligence reports, light-touch reports and vendor due diligence reports, and advise on how best to factor our findings into the overall deal. We discuss with you what level of service is appropriate given the size of the deal, access to information and timing.

Structuring – there are various factors to consider before planning and executing the deal structure.

  • A purchaser needs to consider the views of the various stakeholders, whether management, lenders or existing and future equity holders both at the date of the transaction and on a potential exit. The results of the due diligence process can feed into this, as being aware of tax assets is important.
  • A vendor may have to hive out part of the business and rearrange lending arrangements before any sale.

Maximising tax relief on deal costs from a personal, corporate tax and VAT perspective should also form part of structuring where relevant.

It is important to assess in advance an individual shareholder’s eligibility for any tax reliefs, such as business asset disposal relief (formerly entrepreneurs’ relief), investors’ relief, or any of the venture capital tax reliefs. The availability of these reliefs may be determined by the structuring of the sale process. This should be reviewed at an early stage so that any requirements can be built into the negotiations early on.

The structuring of any consideration received on a sale can have a significant impact on how much tax is payable by an individual and the timing of payments. As a result, advice should be sought as early as possible if the sale consideration takes the form of deferred payments, loan notes, equity or earn-outs.

Our team prepares structuring step plans with an appropriate tax analysis, to execute the most suitable structure and ensure that all stakeholders fully understand the tax consequences of the final structure.

Management incentive plans – share schemes such as ‘Enterprise Management Incentive’ options or ‘non-tax advantaged’ options are often exit-driven. The tax treatment of any share schemes on sale will need to be considered in detail, including the PAYE or NICs obligations arising to the target company. Implementing a new incentive plan pre-transaction may also assist in maximising sale value.

Our team can advise on the tax treatment of any employee shares or share options on an exit event and implementing new management incentives, either pre or post-transaction.

Legal protection – the results of the due diligence need to be carefully incorporated into the legal documentation. For example, the sale and purchase agreement, investment agreement or tax deed. This ensures that the vendor, purchaser or lender is covered if a future tax exposure arises as a result of a pre-transaction issue. In an insured transaction, the insurance providers need also to understand completely any tax risk areas.

Our team reviews legal documentation drafted by the transaction lawyers to ensure that tax risks and assets are appropriately included and that the mechanics of the consideration, warranties and indemnities are appropriate given the due diligence findings. The team liaises with insurance providers as required.

Post-deal support – once a transaction is complete there will be numerous important tax tasks to complete. This includes deal-specific tasks such as filing tax elections, actions from diligence work, engaging with HMRC on a particular issue, or general tasks that need to be undertaken in line with business activities.

We support owners and management teams throughout the share sale process and following completion. We assist them with HMRC tax filings post-sale and help them to bring together their personal tax and financial profile in a way that enables them to plan for the future. Our ability to bring together personal tax advice, financial planning and investment management services allows us to deliver coordinated and complementary services.

Our team can build on the knowledge obtained throughout the deal process to provide you with a tax workplan for the period after the completion of the transaction, to ensure that all potential tax exposures are managed appropriately.

Our dedicated Transaction Services team assists with a full financial review of a business and associated support. Please see the following link for more information.

https://smithandwilliamson.com/en/services/corporate-finance-and-transactions/

 

Frequently asked questions

I have a small UK business that I want to sell. Do I need to have a specialist tax transactions team?

It is important to maximise value on any transaction. Having a specialist team working with you allows you to collate all the information that is usually requested in a diligence process and prepare appropriate responses to prevent unnecessary discussions and potential price reductions.

If any share options are being exercised pre-transaction, or any deferred consideration may be paid, it will be important to ensure that the transaction steps are executed in the right order.

You should obtain tax advice in relation to your personal tax position to ensure that the structure of the sale does not lead to preventable tax issues.

What VAT advice, other than due diligence, can you provide on a transaction?

Our transactions tax team advise on the best strategy for recovery of VAT on transaction costs and future operating costs, and assist with compliance requirements that may arise on the transaction, such as VAT registration, VAT grouping, options to tax, special partial exemption methods and more.

Our Transactions Tax team also input into legal documentation based on knowledge obtained during the due diligence process.

I am raising finance for one UK company; surely I don’t need specialist tax advice as I’m not selling anything?

A valuation will have been undertaken in order to work out how much financing can be supported by the business. This valuation is likely to have some tax assumptions contained within the calculation and these should be reviewed carefully.

A due diligence analysis of your business is likely to be undertaken and it is recommended that you prepare yourself for any potential questions that may arise.

I have a vendor due diligence report provided by the vendors. Do I need to engage a tax transactions team as the tax diligence has been done already?

In this situation we usually recommend a high-level review of the target’s business and vendor due diligence report. This would allow you to test the tax findings in the report and come to your own conclusions on any tax issues in target. This should put you in the best possible negotiation position.

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