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Business break-up? Send in the tax lawyers.

The inevitability of taxation makes it second only to you-know-what in the list of things we’d rather not contemplate.  So, when a business relationship breaks down or an investment turns sour (and you already have more than enough to think about), tax may be the last thing on your mind.  Which is fine, provided that someone is thinking about it for you.

For Druces’ Corporate Restructuring Team, the consideration of taxation consequences is an integral part of our legal structuring advice. Even if you have engaged accountants (whether in relation your general tax affairs or the proposed exit arrangements) our tax team has a role to play, working with your accountants to finalise the commercial steps and legal documentation.

Our tax analysis may involve looking not solely at your position but also considering the likely tax position of the other parties. Even in the most acrimonious disputes both sides can usually agree that, however the cake is to be cut, the taxman’s slice should be as small – and as slow to be paid – as the legislation permits.

The taxation effects which need to be considered will depend on the nature of the dispute but, to be clear, we are not advocating tax avoidance, much less tax evasion. We will consider both the threats and the opportunities, helping you to avoid the banana skins whilst enjoying the bananas.

Types of technical questions we are likely to consider may include:

  • What restructuring should be considered prior to the exit?
  • Does the settlement payment necessarily have to be treated as income, or is there an opportunity to obtain capital treatment for all or part of it?
  • If income treatment is unavoidable, what are the PAYE and NIC’s consequences, and have they been factored into the calculations?
  • Does the proposed exit route endanger any taxation reliefs previously claimed or the restrict the availability of future tax benefits?
  • What steps should be taken to ensure that VAT TOGC (transfer of a business as a going concern) treatment is protected?
  • Are there cross border opportunities or risks?

And, besides the identified risks, there are always the “unknowns”. Here the tax team’s primary function is to ensure that our clients understand the risks and that the documentation properly allocates those risks between the parties on the agreed commercial basis.

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