In conversation with: Dipan Shah

Transcript

Dipan Shah: I'm Dipan Shah. I'm a tax partner. I lead PwC's UK private business tax practice. I advise privately owned businesses and their owners on how best to manage their tax profile.

My clients span from fast-growing companies to established high street brands and household names. They all have one thing in common, they're privately owned and often, but not always, the owners are actively involved in running the business.

My advice covers all stages of the lifecycle of a business from acquisition, growth and expansion, both domestic and international to hiring of key talent and preparing for liquidity events. I also advise the owners and the families behind the businesses on key life events, such as succession, migration and relocation to other countries.

Let's start by asking what we mean by the phrase 'Tax profile.' I mean the overall tax exposure, how certain this is, how this exposure could vary in different commercial situations, and how the client and their stance on tax is perceived by the tax authorities.

Tax is, in many ways, like any other cost of doing business, except it's not an optional expense and the counterparty, i.e the tax authority, has some unique features. There are probably 3 things about HMRC that every client needs to understand if they want to build in a level of resilience to their tax profile.

First, HMRC is resource-constrained. It is expecting taxpayers to engage more to get their tax position right.

Secondly, more than ever before, HMRC has more information sources and more technology and better use of technology to form a more complete, rounded picture about clients and their businesses. And the accuracy and roundedness of this picture is only increasing each day, so you need to factor in how things might appear to HMRC by the time they come to look at the transaction that you are undertaking today.

Thirdly, HMRC's increasingly willing to enforce its view to get to what it considers to be the right tax outcome.

One thing every business and its owners should ask themselves is, 'How resilient is your tax profile?' If there is a thorough investigation into your tax affairs, are you comfortable you've taken the right views and judgement calls? Do you have the documentation to back up your stance?

It's a good question and a very timely one. Yes, the deals market is very active and getting the right tax outcome could make a big difference to whether or not a deal gets done. From all the client situations I have seen, I would distil things down to 3 key areas, and although my comments are based on sellers of privately owned businesses, I believe these reflections apply to all businesses.

First one, deal with any skeletons in your cupboard. Check for any tax issues in the entities you're selling. I haven't yet seen a business where there weren't at least some tax issues to be dealt with. Identify these and deal with them.

Number 2, keep your selling targets structure flexible. Can your structure handle different types of considerations tax efficiently? You should ask yourself. Whether the buyer offers cash upfront, deferred consideration and earn-out, or needs you to invest, or all of the above, you want your structure to be able to accommodate the widest range of buyer terms without penal tax consequences. Also, think about what assets you want to sell and, crucially, what assets you want to retain to get the deal over the line.

Thirdly, don't forget to negotiate value for tax. There are certain tax deductions that arise as a result of how you structure your affairs. The buyer would often not have factored these tax deductions into their calculations when thinking about what price to offer you. It is important to recognise this dynamic and you can negotiate the value of these tax deductions to your benefit. So, to conclude, tax should never get in the way of a deal, and it should enhance what you make from a deal.