Taxing times? Expert urges sellers to act fast when exiting

Entrepreneurs who decide to enter the journey to sell their businesses should give themselves enough time to get their tax affairs in order, according to one leading Midlands expert.

Mike Tuhme, private capital tax lead in the Midlands at KPMG, says although the decision to sell a business can sometimes be “highly emotional”, it’s imperative that business owners don’t leave tax considerations until the last minute.

Tuhme said: “The most common mistake we come across is sellers neglecting to address tax issues too late. This can cause a multitude of problems, including the danger that the buyer might find an irregularity and the vendor running out of time to secure the best tax rate for his of her exit. This is completely understandable, as they’re busy with other aspects of the sale, but it’s vital tax issues are added near the top of items that need achieving as they near the sale of their business.”

Tuhme said that sellers should start getting their tax affairs in order 18 months out from a sale, ideally. “A vendor needs to be prepared and in control of the process,” he said. “If that means going to HMRC, then so be it. Share issues also need to take priority, as to take advantage of the 10% rate of Capital Gains Tax, an individual needs to have held those share for 12 unbroken months prior to a sale.”

The “highly emotional” sales process shows that most entrepreneurs care about the people still left in the business, said Tuhme.

He added: “Being part of a business for, say, 30 years, and in some cases working with the same people for that period of time, often means that exiting owners want to reward their management team and other staff for the efforts they have put in. Again, this brings with it tax issues that need to be addressed well in advanced of any exit. It’s a very emotional process for many business owners, but that shouldn’t cloud the need for well organised tax planning.”

If you’re considering the next stage in the evolution of your business, downloadKPMG’s Road to Exit guide or email midlands@KPMG.co.uk for more information.