Management buyout - tax considerations for management

8 September 2020 David Robinson Corporate Finance, Business News

So, you’ve been offered a fantastic opportunity to acquire shares in the company you work for, as part of a management buy-out (MBO for short). 

This could involve buying the company in full or result in you owning a proportion of the business, but either way it will allow you to share in the future growth and success of the company.

But what does this mean for you?  It is generally the case that corporate finance type advice is sought in such transactions.  However, there are also many tax implications that can arise on an MBO, which can have a significant impact on the company and the management team. 

We recommend that management teams going through an MBO seek independent specialist tax advice to guide them through the process.

MBO- Potential tax considerations for management

Areas to consider include: 

  • How to structure the acquisition – whether to buy shares or assets?
  • Who should acquire the business – Newco or individuals?
  • What Stamp Duty will be due?
  • How should management be remunerated in future?
  • What are the tax implications of buying the business?
  • What about VAT?
  • Are deal costs tax deductible?
  • What about Business Asset Disposal Relief (formerly Entrepreneurs’ Relief)”?
  • Who should receive external finance? The target company, the purchaser or someone else?
  • What are the tax implications of external finance? Or finance provided by the target? 
  • Is bank interest tax deductible for the borrower?
  • How should management provide any finance they are putting into the deal?
  • Should the group structure be simplified post deal?

Individuals involved in an MBO should seek tax advice on what this means for them before agreeing the details of any transaction.  Failure to do so can lead to unintended tax consequences and ultimately place the business under financial pressure at a time when the new owners want to invest and grow the value. 

Leading a business through change is a challenge and finding the best route to the future you want requires true expertise. Whether you’re buying, selling or raising finance for a business, our award-winning Corporate Finance team are with you all the way, bringing strategy, insight and conviction to get you the results you really want.  If you are considering a transaction, or would like more details on your future plans, then why not drop us a line today to see how we can help make your ambitions a reality.

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