What is a Section 110? with Matt Crosse of Tollers Solicitors

Neil Ackroyd

How to sell my business Welcome to Corporate Finance Television. My name is Neil Ackroyd. Today we will be giving you the knowledge to choose by talking about how to avoid potential tax problems on a transaction when selling a business. I am here with Matt Crosse of Tollers Solicitors. Matt welcome.

Matt Crosse

Thanks Neil, it is good to be here.

Neil Ackroyd

So Matt today, what we really want to discuss is one of the scenarios where just by doing a corporate finance transaction you could possibly incur tax liabilities that really aren’t relating to the transfer of value. The situation that we are really wanting to discuss is where you are selling a business or the trade sale of a business to a third party and they don’t also want to purchase the property that is in your trading company.How to sell my business Is this a situation that you are quite familiar with?

Matt Crosse

Yes it is Neil. Typically a lot of companies prefer not to have their premises owned on a freehold for capital costs for example and would prefer them to be leased. So they are not always that willing to take on a company that has a freehold ownership in it.

Neil Ackroyd

Right, ok, so lets define that problem. I guess there are four ways actually that you could structure a transaction where you sell the trade to Person A and retain the property yourself but lets look at them. Matt, 1) selling the trading assets to a third party, do you want to talk through that?

Matt Crosse

Typically, you would transfer the trading assets so that would be the contracts with customers the companies good will, that would all be transferred across to the buyer. That would leave pretty much the company with just with the freehold premises in it.

Neil Ackroyd

Yes, of course the problem with that is that you are taxed in the company and then taking the cash out of the company. So you have sold the trade to the third party, they’ve paid in cash but they have got all the cash in the business and you are paying corporation tax in the company and then whatever tax/dividend whatever to get the money out. So that has the tax issues that we are talking about, doesn’t it?

Matt Crosse

Yes very much so. In effect it is a double taxation hit by the time you get the proceeds of sale which the buyer pays for the trading assets back to the shareholders of the selling company.

Neil Ackroyd

And of course you are missing out on all the great things like Entrepreneurs Relief.

Matt Crosse

You are very much so because that only applies that relief to the sale of shares. It doesn’t apply to the sale of assets by a company.