New financial year tax advice

Business tax advice: Looking ahead

to the new financial year

As we approach a new financial year, it’s time to take stock and, assuming we don’t go back into lockdown, build on the progress made during 2021. Corporate tax consultant Pete Miller advises

There’s no doubt that the pandemic has led business owners to rethink their futures over the past two years. Concerned about their mortality, many brought forward their retirement plans, selling their businesses earlier than they had originally intended.

And, with the pressures of trading during the crisis exposing irreconcilable differences in some business relationships, we’ve seen business partners break up and go their separate ways. One partner might, for example, want to take the business in a new direction, postlockdown, while the other would prefer returning to life before coronavirus.

Breaking up or demerging doesn’t have to be hard to do, but the tax aspects can be complex. There are special exemptions and reliefs from tax which let you demerge pretty much tax-free (subject to certain conditions), but you will need expert professional tax advice.

BREAKING UP OR DEMERGING DOESN’T HAVE TO BE HARD TO DO, BUT THE TAX ASPECTS CAN BE COMPLEX The options when selling a business

When it comes to selling your business, you have several options. Increasingly, owners are giving earlier consideration to who should step into their shoes and when. But before you sell, you’ll need to look at how your sale is structured for tax.

If you qualify for Business Asset Disposal Relief, you’ll pay Capital Gains Tax at just 10% on the first £1m of gains, and at 20% thereafter. You may structure your sale differently if it’s to a third party, to your management team, or to your children, or even to a mixture of any two or three of these. If your buyer can pay you cash on day one, then tax isn’t an issue. If they can’t, then you might need some kind of structured deal.

Are you considering marketing your business? Then you’ll need to get it ready for sale, which might include a demerger, at least two or three years before you plan to sell it. That way, you’ll be able to show that the demerger is for commercial reasons, making it easier to persuade HRMC to give you advance clearance. Again, getting clearances is something we can help you with.

Management buyouts (MBOs) are still commonly used to help owners realise the value of their businesses but EOTs (Employee Ownership Trusts) are becoming more and more popular too. Essentially, an EOT is a tax-efficient way of passing on your business to your employees. As long as you satisfy relatively straightforward conditions, the sale of the shares to the EOT should be free from capital gains tax.

Some of the legislation around EOTs, is, in the Chartered Institute of Taxation’s view, not quite fit for purpose, but the CIOT, of which I’m a member, is making representations about these issues.

Find more of the latest at themillerpartnership.com/news.