It is quite an achievement to find a buyer for the family business that has been built up over a number of years. All of that blood, sweat and tears. And more tears. But now its time to relax and plan for the future.
In the short term, it can be a minefield engaging more professionals to get the agreement down in writing and invest your new-found wealth wisely. There’s solicitors, IFAs etc – it can seem never ending.
But then once the euphoria has died down, the devil can always be in the detail.
The Heads of Agreement have been signed by everyone and the deposit money is in the bank. Your client’s bank account. No earn out, no other complications.
Or are there?
You get what you pay for
“Exactly what have you sold?” I posed this question to a recent client. And their solicitor. And their accountant.
You would think the answer would be obvious, namely their respective shareholdings in each of the companies that made up the “group”.
Therein lay the start of the problem.
Each company had its own origins. Some companies were set up from scratch. Some bought from previous owners. Nearly all had key personnel that had often been given both directorships and rewarded with some shares. They were not strictly “a group” but there was a core of people (2 families) that had common majority ownership. Each family thought and acted as if each family owned 50% of each business and then each spouse was equal as well.
But the facts suggested a slightly different story.
A lack of documentation and a lack of care didn’t help the situation.
What was said over the years in getting to today’s position was not always properly recorded. There were plenty of notes and a plethora of contemporaneous emails. But none of them recorded everything let alone accurately.
Moreover, Companies House was even more out of date. But what was there, was online. In previous similar instances, I had to examine handwritten records, where they existed.
Husband and wife were not always 50:50 because some of the original 100 shares had been given or sold to another key worker. In more than one instance, 3 shares were given or sold here, 4 shares there and then the balance was supposedly split equally. But this meant three parties had 23 shares and one 24 shares (together with the 7 share minority).
The buyer bought all the shares for an agreed amount. How this was to be divvied up between the sellers was the problem.
What a mess…
In total, we had the shares in 5 companies being sold. 15 shareholders with various percentages representing their individual shareholdings. Issues involving stamp duty, PAYE/NIC, income tax, capital gains tax and corporation tax.
All the buyer wanted was all the shares – sounds simple.
All the sellers wanted was their share of the proceeds, to pay the tax due and move on – sounds even simpler.
But it was such a mess. Not fraud. Unfortunately, a recurring facet in entrepreneurial businesses owned by families and friends working long hours at 100 mph.
14 months later…
All resolved.
All paperwork corrected.
All taxes paid, with interest and penalties, mostly suspended to boot.
But the two families said that working with me and tidying up what had gone on was more stressful than selling the actual businesses. This was for a number of reasons:
- When making a Disclosure to HMRC, you cannot be selective about what you want to disclose. It’s all or potentially prosecution (depending upon what is still being hidden from HMRC).
- A Disclosure is a trigger effectively for a tax investigation into each taxpayers’ past tax compliance, both corporate and personal.
And low and behold, there are numerous unrelated errors/omissions in some of the individual’s tax affairs with a mixture of undeclared employment and self-employment income, benefits in kind, interest, dividends, capital gains – a full house you might say.
And the moral of the story is … … …
A lot of patience is needed and it is necessary to pay attention to the detail at all times.
There was no need for lady luck to be involved in this case. It was a question of gathering all the relevant facts and applying the law.
Knowing what the facts are and how to find “the numbers”, identifying the part of HMRC to approach, how to present the case and the multiplicity of outcomes firstly to all the taxpayers and then HMRC, well that’s all down to my experience in this area of work. But then no two cases are ever the same.
On a personal note, it was a challenge from day one. But thanks to the cooperation and resilience of all concerned, we got there. I certainly would not want to have two such cases on the go at the same time. One was more than enough in that sense.
But I am ready for the next challenge. I can be contacted on 07979 313 010 or at paul@pmc.tax.