From a VAT perspective, transactions are potentially the most sensitive and risky areas advisers are asked to assist with. Selling or buying a business is often a deeply personal process and it is important for vendors and acquirers to fully understand the state of the business in question from a VAT perspective.
For vendors, ensuring a business is in the optimum VAT position for sale is a key consideration at the stage a transaction is first countenanced?. An exercise to identify and rectify any VAT risks or exposures at this point means that the business is as attractive as possible from a buyer’s perspective, and looks to ensure that purchase-side due diligence does not uncover any surprises that lead to a reduction in consideration achieved.
For purchasers, as the above suggests, thorough due diligence into a target business is also of vital importance. This is to ensure that any latent risk is identified pre-purchase and the appropriate consideration is paid, as well as the required warranties and indemnities being written into the legal agreements governing the transaction.
The form of the transaction also has VAT consequences for both the buyer and seller – a share sale and a trade and asset deal, are not the same and demand different things. Similarly, the acquisition structure of the buyer must also be given careful consideration. The VAT recovery of (the often significant) has long been the subject of much litigation and depends on the precise post-purchase activity of the entity that incurs the costs; the reason for acquiring the business (for example trading vs investment) and the relationship between the professional service providers and the recipient. Care needs to be given to the engaging organisation and what the recipient will provide to the acquired business or group in future.
At Armstrong Watson, we have an experienced team with both practice and HMRC backgrounds that approach transactional services with knowledge and experience. Alex Nicholson, who leads our Indirect Tax practice, was part of PwC’s transactional taxes team before joining AW, and can advise on the whole spectrum of buy and sell side issues.
