Buying a Business

“We must tell our accountant we just bought a business” – this is fine if you like paying more tax than you need to.

Involving us at an early stage usually saves quite a bit of tax. There are all sorts of issues – the proportions you own the new business in as between you and your spouse or partners – how the purchase price is allocated – warranties obtained and so on. If it is a question of buying a company, do you buy the shares, or do you buy the assets?

Buying an existing trading company is usually fraught with all sorts of problems as you need some sort of guarantees that nothing nasty is going to jump up and bite you after you have acquired the shares in your new company. Buying the assets is usually a best bet as you substantially reduce the chance of acquiring a liability of which you were unaware. We can work out a tax-effective way for you to buy a business and help you negotiate this with the vendor. For example, buying a business with a factory included, we would want the purchase price split in the contract to reflect a decent (but of course fair!) value on equipment and fixtures and fittings. Why? Because equipment and fixtures and fittings attract capital allowances which will reduce your future tax liabilities. Putting this figure in the contract means that you have a fixed figure, rather than have to negotiate one with the Inland Revenue.

We have also been involved in setting up joint venture arrangements where you and your company want to carry on part of your trade with another company but want to limit your involvement in case something nasty happens to the other company. We have negotiated and arranged trading through a new company where both parties’ rights and responsibilities have been clearly outlined at the start.

Fred and Jim came to us because they needed to buy Harry out of a business which was worth quite a lot of money. They needed to borrow well into six figures, which was going to be share capital in a new company to buy out Harry (see Company Reorganisations and Share Buy-ins). This meant that it would be many years before they could get their share capital back – really only on a sale of the business – but during that time, they would have to make repayments of the money they had borrowed and, even worse, the repayments would have to be made out of taxed income. We helped them rearrange matters so that the bulk of the money they had to borrow and put into the business was put in as a loan. This meant that whilst the business would have to pay corporation tax at 19%, some of the 81% left over could be used to repay the loans. Contrast this with £81 being available for dividend and then (for higher rate tax payers) being taxed in their hands at a further 25% of the £81, thus leaving only just over £60 to repay the loans.

As with almost everything – give us a call at an early stage so that we can help plan the tax effects with you to fit in with your current tax situation.