Purchasing another business

If your company wishes to acquire the business of another company there are two methods of doing so, each of which has different tax implications.

Purchase the shares from the existing shareholders
The tax implications of this method of acquiring the business of another company are:

• The outgoing shareholders will make a capital gain on the sale of the shares
• Generally, losses made before the purchase will be available to set against profits made after the purchase. However, if the new shareholders change what the company does, any trading losses incurred before the purchase may not be available for relief against profits made afterwards
• Duty on Documents will be payable at the rate of 2% or 5% on the higher of the amount paid and the openmarket value of the shares

Purchase all the assets and liabilities of the business out of the existing company
The tax implications of this method of acquiring the business of another comapany are:

• The company may make taxable gains on the assets it sells. If capital allowances have been claimed on any assets, a taxable balancing charge may also arise.
• If the previous company made losses, these losses will not be available to set against the profits you make after the purchase

How can Grant Thornton help?
Grant Thornton has staff who specialise in the tax aspects of corporate transactions, and can offer advice at all stages of an acquisition. In most cases, transactions can be structured to minimise the adverse tax consequences outlined above.