Buying / Selling a business

Soldato
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I’m leaning towards buying now

Make sure you get some tax advice before entering into any agreement. There are some pitfalls and it would also be worth considering whether you are buying the shares or whether the company is doing a share buyback (which, incidentally has the most childish initialism in taxation). If you are buying the shares be careful where the money comes from (i.e. it could cost you a lot of income tax taking from the company).
 
Soldato
OP
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Make sure you get some tax advice before entering into any agreement. There are some pitfalls and it would also be worth considering whether you are buying the shares or whether the company is doing a share buyback (which, incidentally has the most childish initialism in taxation). If you are buying the shares be careful where the money comes from (i.e. it could cost you a lot of income tax taking from the company).

I was aiming to buy through the company using company profits to pay the other director. It seemed the easiest and lowest risk option. Mind you I’ve not had the tax advice on that yet!

I know if I’m selling, then doing it that way is the best to make sure of the relief and pay 10% tax.

the company that’s looking at dealing with the transfer seemed to think there wouldn’t be to much of an issue with the company paying for the shares monthly
 
Soldato
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I was aiming to buy through the company using company profits to pay the other director. It seemed the easiest and lowest risk option. Mind you I’ve not had the tax advice on that yet!

I know if I’m selling, then doing it that way is the best to make sure of the relief and pay 10% tax.

the company that’s looking at dealing with the transfer seemed to think there wouldn’t be to much of an issue with the company paying for the shares monthly

Actually, the company buying the shares is a massive minefield for the person selling, particularly if they want to pay CGT rates (which then flows through to the 10% rate).
 
Soldato
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Actually, the company buying the shares is a massive minefield for the person selling, particularly if they want to pay CGT rates (which then flows through to the 10% rate).

oh really?

The fella today made it sound so straight forward once the contract is in place
 
Soldato
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oh really?

The fella today made it sound so straight forward once the contract is in place

Legally it’s easy, it’s the tax that needs to be carefully managed. If you’re not careful that money could be treated like a dividend and subject to tax most likely at 32.5% rates.
 
Soldato
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Legally it’s easy, it’s the tax that needs to be carefully managed. If you’re not careful that money could be treated like a dividend and subject to tax most likely at 32.5% rates.

hopefully my accountant will be all over that!

I’m still yet to decide 100% and the decision keeps swinging one way to the other! I need to really seek more advice and keep talking to people! The problem is each professional has there own opinion. The figures and the company is showing such amazing growth that it’s hard to consider anything but a purchase!

but on the flip side the offer of over £500k is also very tempting at 31
 
Soldato
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hopefully my accountant will be all over that!

I’m still yet to decide 100% and the decision keeps swinging one way to the other! I need to really seek more advice and keep talking to people! The problem is each professional has there own opinion. The figures and the company is showing such amazing growth that it’s hard to consider anything but a purchase!

but on the flip side the offer of over £500k is also very tempting at 31

Tbh it’s only really a problem if you’re the seller, it’s why I asked :D
 
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Associate
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I have skimmed and it may have been mentioned but if you buy them out get them to sign a waiver stopping them from starting a similar business for x amounts of years.
 
Soldato
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what added stress does it give?

No added stress, just the potential of a 32.5% tax rather than a 10% tax. Which makes a pretty huge impact on 500k!

One thing that's got me thinking, you mention being stressed at your current workload of a job plus running part of this other venture. How are you going to cope when you're running 100% of the other venture?
 
Soldato
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what added stress does it give?

If a company does a "purchase of own shares" ("POOS" lol) the default position for tax purposes is that the purchase constitutes a distribution. A distribution is the technical term for a company providing money/assets to its shareholders, with dividends being the most common form. Importantly distributions are taxed as Income and subject to the 7.5%/32.5%/38.1% rates depending on band.

In order for the purchase of own shares to be treated as a Capital purchase (and therefore subject to either the 10% or 20% tax rates) a variety of conditions need to be met. This includes the purchase is for the benefit of the trade (and this is actually quite restrictive as to what counts as a "benefit") and there are requirements concerning the actual change in ownership after each purchase. It's therefore necessary to draft any purchase agreements quite carefully, particularly where the share purchases are being undertaken in tranches.

I would also say from the limited information you have provided I would have doubts you would pass the "benefit of the trade" test. But I also expect you haven't given all the important information i would be looking to learn from a professional meeting so those doubts aren't very solid.

I also reiterate this:

For the avoidance of doubt I am not giving any professional advice or recommendations to anyone in this thread or reading this thread. If you want professional advice please find and engage an appropriate professional. If you place any reliance on what I have written you do so at your own risk.
 
Soldato
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If a company does a "purchase of own shares" ("POOS" lol) the default position for tax purposes is that the purchase constitutes a distribution. A distribution is the technical term for a company providing money/assets to its shareholders, with dividends being the most common form. Importantly distributions are taxed as Income and subject to the 7.5%/32.5%/38.1% rates depending on band.

In order for the purchase of own shares to be treated as a Capital purchase (and therefore subject to either the 10% or 20% tax rates) a variety of conditions need to be met. This includes the purchase is for the benefit of the trade (and this is actually quite restrictive as to what counts as a "benefit") and there are requirements concerning the actual change in ownership after each purchase. It's therefore necessary to draft any purchase agreements quite carefully, particularly where the share purchases are being undertaken in tranches.

I would also say from the limited information you have provided I would have doubts you would pass the "benefit of the trade" test. But I also expect you haven't given all the important information i would be looking to learn from a professional meeting so those doubts aren't very solid.

I also reiterate this:

For the avoidance of doubt I am not giving any professional advice or recommendations to anyone in this thread or reading this thread. If you want professional advice please find and engage an appropriate professional. If you place any reliance on what I have written you do so at your own risk.

some valid things to take in there!

what’s your background?

obviously there are some bits I’ve not mentioned in a public forum to protect the company and its directors!
 
Soldato
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some valid things to take in there!

what’s your background?

obviously there are some bits I’ve not mentioned in a public forum to protect the company and its directors!

I'm a tax advisor :D

I specialise in companies and related matters, so this type of thing is my bread and butter. In fact, the first ever piece of tax advisory work I did and provided to a client was advising on the conditions for a company's purchase of own shares!
 
Soldato
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@Kemik - where are your opinions at, my dude?

Dodging this one for Pudney :p Been a while since I did owner managed business structuring stuff. More focused on MNEs these days.

OP certainly needs to make sure they have an experienced advisor for the pitfalls around legal agreements though. Need to consider what happens if the partner changes their mind and sets up a rival business. What are the barriers to stealing your customers and how can you protect against them? How happy are you that there are no time bombs in the company (i.e. how much do you know about what the partner was up to in the business' name or what happens if a customer brings a huge warranty claim - do you want the old owner to be jointly liable)? What happens to any cash in the business?

Lots of things to think about and it's pretty difficult to give advice without knows the background to the business unfortunately.
 
Soldato
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I'm a tax advisor :D

I specialise in companies and related matters, so this type of thing is my bread and butter. In fact, the first ever piece of tax advisory work I did and provided to a client was advising on the conditions for a company's purchase of own shares!

Do you fancy advising me on tax haha. Send me a message with a company name or phone number if your interested. Would at least like to know your rates and have a chat if nothing else!
 
Soldato
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Love it when @Pudney gets his groove on. @Kemik - where are your opinions at, my dude?

Normally it's boring accounting stuff I get to talk about on here, tax is much more fun :D

Dodging this one for Pudney :p Been a while since I did owner managed business structuring stuff. More focused on MNEs these days.

Been a while since I did MNEs, sometimes I miss it but then I remember how American banks treat you... :D

Do you fancy advising me on tax haha. Send me a message with a company name or phone number if your interested. Would at least like to know your rates and have a chat if nothing else!

Happy to have a chat through, I'm southern so quite expensive really but at the very least I can give some pointers for when you talk with your current accountants! :D
 
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