The buyer will, therefore, need to carry out a detailed investigation or 'due diligence' and will usually require extensive warranties and indemnities from the shareholders.

An asset sale is usually simpler, but the structure of the sale will often be dictated by tax considerations. Contemplate hiving down the assets into a new, clean company in order to avoid passing on liabilities and make it more attractive to a buyer.

Saving tax

Ask your accountant or tax adviser to advise how to apportion the sale price between the various assets being sold.

For example, if capital allowances have been claimed, there will be a balancing allowance in the year of disposal to reflect depreciation not accounted for.

If the price apportioned to fixed assets exceeds their written down value in the seller's books, there may be a balancing charge on the difference, which could increase the seller's tax bill.

The disposal of assets, other than trading stock, is chargeable to capital gains. Take advice, therefore, on available reliefs.

These include roll-over relief in re-investment in permitted qualifying assets; business asset taper relief and indexation allowance for disposals after 5 April 1998.

A seller will usually wish to keep stock values low since the sale price of the stock will be taxed as income.

The buyer, on the other hand, will want higher acquisition costs attributed to the stock so he can claim stock relief. It is therefore better to make it clear early on in the negotiation, how you would like the price to be apportioned.

If the business is owned by a limited company, a share sale may be the best way of saving tax.

Business asset relief for individual shareholders selling shares in a private trading company is very attractive and avoids the tax 'double whammy' – corporation tax on chargeable gains on a disposal plus income tax on distribution of the net proceeds as dividends.


Usually, it is possible to avoid having to charge VAT on the sale price.

If the sale can be treated as the transfer of a going concern (TOGC) no VAT is payable. The seller does not account for VAT but is still not prevented from deducting input taxes on related expenses as a general business overhead.

To qualify as a TOGC, the business must be transferred as a going concern, and the assets must be used by the buyer in carrying on the same kind of business as the seller.

It is essential that the buyer is registered or becomes liable to be registered if the turnover exceeds the current registration limit immediately before the transfer.

It is important to ensure that there is no significant break in the normal trading pattern before or immediately after the transfer.

Special care must be taken if one of the assets to be sold is a property.

If the seller has elected to waive the exemption to VAT but the buyer has not, the seller must charge VAT on the price.

In order to avoid this, the buyer must elect to waive the exemption too and notify HM Revenue and Customs before the ‘time of supply'. This usually means notifying before exchange of contracts.


The rights of employees of a business are protected when it is sold as a going concern. This is by virtue of the Transfer of Undertakings (Protection of Employment) Regulations 1981 (TUPE).

All employment rights of employees are automatically transferred to the buyer, so that continuity of employment is preserved. So,if an employee has a claim which could have been brought against the seller (eg sex or race discrimination, or harassment) it can be brought against the buyer.

If it is not intended to retain the services of all employees, careful consideration should be given to paring down the workforce to achieve a sale.

This is easier said than done since it is very difficult in practice to circumvent the effect of TUPE. Some possible ways round the problem are:

The dismissal will not be automatically unfair if it is for an ‘economic, technical or organisational' (ETO) reason. If, therefore, the buyer does not wish to take on the workforce, then work out the budgetary restraints to demonstrate that it is not economically viable to do so, thus avoiding a successful claim for unfair dismissal.

It is usually preferable if the buyer takes over the staff and then dismisses any unwanted staff for ETO reasons.

Ensure that proper consultation takes place before any redundancy is announced. Where there is a recognised trade union/staff association, consultation should include them.

Extreme care must be taken if a claim for unfair dismissal is to be avoided. Obtaining early legal advice is recommended.

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