By Angela Keery, Tax Director
At Baker Tilly Mooney Moore, we assist local businesses across Northern Ireland with their succession planning and preparations for the future. Often what we see, is that some businesses aren’t necessarily looking at business growth, but rather the future sale of the business and being able to extract value when the time is right. If you’re thinking about the future of your business, broadly speaking, there are key elements that you should consider.
Being Ready for Sale
Careful sales planning to ensure your business’s tax affairs are all up to date and accurate so take the time to settle any HMRC enquiries as soon as possible. Implementing some Tax Health Checks (or vendor due diligence) will give you peace of mind that all the areas a purchaser would look at as part of the sale process are as they should be. This is the time to think about how you reward your employees for their part in getting the business to the point of sale, should that be some form of shares scheme or equity-based incentive – guaranteeing you reward employees as tax efficiently as possible.
Finally, in getting the business ready for sale, you may need to get particular assets out of the business (that wouldn’t be part of the sale). Having thought about this process in advance enables restructuring to be carried out tax efficiently.
Planning ahead is also vital to ensure you can avail of any available tax reliefs, such as qualifying for Entrepreneurs’ Relief which now requires certain conditions to be met throughout the two years before disposal. Consider the availability of Gift or Holdover Reliefs if you are planning for succession as opposed to a sale and are passing your shares to the next generation. You will also need to give thought to your potential Inheritance Tax liability – if you go from having an interest in a trading business to a cash lump sum for example, your potential Inheritance Tax liability may have increased significantly.
After Tax Proceeds
Whether you sell individual assets, or shares in your trading company is typically part of the negotiation with the purchaser, but a lot depends on the individual assets and what you intend to do with the sales proceeds.
Thought should be given as to whether or not you want to receive the sales proceeds immediately in cash, or whether part or all of the proceeds is in the form of shares in the acquiring company, or you retain a part interest in your business for example.
You may also need to think about conditions in the contract around completion or payment dates. If you foresee earnout conditions before receiving full proceeds you need to ensure you have sufficient cash to pay tax liabilities arising, even though you may not have received any cash proceeds.
Future Use of Funds
Finally, thought should be given to what you intend to do with the proceeds – for example, how will you invest the proceeds? Are there any tax efficient investments that you should consider or reliefs available?
If you intend to pass the sale proceeds onto family members, they could hold shares or interest in your business at the date of disposal (so that the proceeds going to them does not come into your estate for IHT purposes). Care needs to be taken to protect you and your lifestyle, whilst minimizing tax liabilities.
There are numerous considerations when thinking about the future of your business, whether that be succession planning in passing the business to the next generation or a third-party sale.
It might sound daunting, but preparation and working closely with your advisers is key. Baker Tilly Mooney Moore can assist you in working through all of the considerations around the future of your business. Contact Angela Keery, Tax Director, on 02890 323466 or email firstname.lastname@example.org to find out more.
This is an extended version of an article that featured in the Irish News on 25th February.