On a sale of shares, proceeds of the sale may be paid in full on completion. Alternatively, part of the proceeds may be paid on completion, with the balance becoming payable at one or more future dates. In the latter case, there may be certain performance conditions attached to the future proceeds (typically related to the financial performance of the company) that must be met in order for the vendor to receive further payment. The latter case is commonly called an “earn out”, and there are several tax points to consider when negotiating a sale of shares to ensure that the earn out is practical and tax effective for the parties involved. Why Consider an Earn Out? There are numerous reasons to have an earn out as part of a share...

When businesses/companies employ capital assets (e.g. machinery, motor vehicles) for use in their business, such costs are not deductible from trading profits because the expenditure will have an enduring benefit for the trade. Instead, relief is available through capital allowances which essentially allows relief for the fall in value of capital assets, providing a deduction when arriving at taxable profit. Furthermore, the annual investment allowance (AIA) is available to businesses to encourage greater levels of investment. The AIA reduces the costs of capital by providing 100% capital allowances for the first £1,000,000 (between 1 January 2019 and 31 December 2020) of plant an machinery (excluding cars) acquired by the business for...

Changes introduced by the Finance Act 2019 (FA-2019) address inconsistencies between the tax treatment of tangible fixed assets (e.g. cars, vans, machinery, buildings) and intangible fixed assets (e.g. goodwill, intellectual property). The new provisions bring the intangible fixed assets rules more in line with those applying to tangible fixed assets. Degrouping Charge A degrouping charge may apply where a company (Co A) acquires assets from another group company (Co B) on a no gain/no loss basis, and Co A leaves the group within 6 years of acquiring the asset. The effect of a degrouping change is that Co A is deemed to have disposed of and reacquired the asset at market value immediately after the asset was acquired, thereby crea...

The provision of company shares can be a valuable tool in incentivising key members of staff to remain with the company long term and actively grow the company’s business and increase profits. HMRC has several approved employee share schemes, each with their own tax advantages for the employee and employer/shareholders. However, certain conditions must be met by the employer/employee in order for these schemes to qualify and therefore they are not always commercially viable. Growth shares are a practical option, especially where the company shares already have significant intrinsic value. What are Growth Shares? Suppose that a company wishes to incentivise one of its managers to stay with the business and continue to contribut...

Entrepreneur’s relief  ("ER") is a valuable relief from Capital Gains Tax ("CGT") which, when available, restricts the tax rate to a flat 10% on up to £10 million worth of lifetime gains. The 2018 Budget announced changes to the conditions for obtaining ER, and in light of the new rules it may be worthwhile for taxpayers to dispose of relevant assets before 6 April 2019. Minimum Qualifying Period ER applies to disposals of: shares in a trading company; (the whole or part of) a business; assets in association with the sale of a business; assets from a solvent company that has ceased trading. For disposals involving shares, the shareholder would need to work for the company and hold at least 5% of the ordinary s...

A corporate restructuring takes place where a company and/or a group of companies undergo a process of reorganising the ownership structure for the benefit of the business. Common reasons for a restructuring include a change of ownership, mergers (i.e. merging two or more separate companies into one), and demergers (i.e. the separation of a company into two or more smaller companies). From a tax perspective, the term “reorganisation” is not defined in the legislation. However, it is accepted that it refers to a company organising its share capital in a different way. Where the transactions in a reorganisation meet certain conditions for tax purposes, the reorganisation is not treated as involving a disposal of the original sha...

Whether a property is residential or non-residential for Stamp Duty Land Tax ("SDLT") purposes is not always clear cut, and this will affect the tax payable and also the reliefs/exemptions that might apply. Residential rates can be as high as 15% (where the 3% surcharge applies), whilst non-residential rates top out at 5%. Mixed use properties (used for both residential and non-residential purposes) are subject to non-residential rates. In light of the different rates and reliefs that can apply, it is crucial that the nature of the property is correctly identified at the time of purchase. HMRC has recently clarified their views and guidance on what constitutes residential property for SDLT purposes - some of the points discussed ar...

In Dieno George v HMRC, the First-Tier Tribunal (FTT) denied a claim for entrepreneurs’ relief (ER) by a chief executive on a 6.9% shareholding in the limited company. The case highlights the importance of meeting the exact conditions of the legislation, even where circumstances might suggest that such conditions are met and that the relief may be obtained. Background Mr George (the taxpayer) was recruited by Thornton & Ross Limited (the company) in October 2001, successfully working to expand the company’s business and obtaining the position of chief executive in Mach 2002. The taxpayer subscribed £999,996 for 600 C Ordinary shares in the company in 2005, and a further £10,000 for 1547 D Ordinary shares in 2008. These ...

Deciding if/when to incorporate your business is an important consideration that many entrepreneurs will face in the life-cycle of their business. Before a decision can be made as to whether incorporation is right for you, it is important to be aware of what a limited company is, and how it differs from operating as a sole trader/partnership. What is a limited company (Ltd)? A UK private limited company is a separate legal entity, with its own assets and liabilities. When operating as a sole-trader or a partnership, assets and liabilities of the business will belong to the individual or partner. Companies are owned by shareholders through the issue of shares. If you own shares in company (which may be purchased from another shar...

Here are some of the highlights from the Chancellor of the Exchequer's 2018 Budget (published on 29 October 2018): Personal Tax The Personal Allowance will be raised to £12,500 and the Higher Rate Threshold (i.e. the amount that an individual can earn before paying higher rate tax) to £50,000 in April 2019 – a year earlier than planned. These levels will remain the same in 2020/21, and then increase by CPI going forward. The final exemption period for Principal Private Residence Relief (PPR) which provides Capital Gains Tax relief on the sale of your home will be reduced from 18 to 9 months. Under the current PPR rules, where you have let a property which at one point was your home Lettings Relief may be available to reduc...