Summary of company tax matters following an MBO

Produced by Tolley

The following Corporation Tax guidance note Produced by Tolley provides comprehensive and up to date tax information covering:

  • Summary of company tax matters following an MBO
  • Introduction
  • Deductibility of interest costs
  • Corporate interest restriction (CIR)
  • Application of transfer pricing principles
  • Late interest provisions
  • Trapped losses
  • Deductibility of transaction costs
  • Form 42 and other reporting requirements
  • Implications of enlarged group for corporation tax purposes
    • More...

Summary of company tax matters following an MBO

Introduction

Several new companies may have been incorporated and / or acquired as a result of a management buy-out (MBO). See the Introduction to management buy-outs (MBO) guidance note for more information on the structure of an MBO. It is important that the directors of the new group are aware of the tax matters which may need to be addressed once the transaction is complete. It is likely that a tax structuring report was issued by the tax advisers involved in the transaction, not only setting out the steps required to implement the structure for the transaction, but also the recommended actions and ongoing tax issues to consider once the MBO has taken place. A due diligence process will also have been carried out and the tax section of the report issued as part of this exercise should be consulted to ascertain whether any other action was recommended.

More information on the acquisition process itself can be found in the Buying a company ― summary of key issues guidance note.

The members of the MBO team making the investment should ensure that they obtain their own tax advice covering the tax matters affecting them. These matters are not covered here as this note deals with company taxation issues. The following guidance notes set out some of the relevant issues the investors may wish to consider:

  1. •

    Tax treatment of earn-outs and deferred consideration

  2. •

    Conditions for business asset disposal relief

  3. •

    Employment-related securities

  4. •

    Restricted securities

Deductibility of interest costs

The MBO team is likely to have required additional financing from external investors, such as banks and venture capitalists. It is possible that some of these institutions may have received shares in the new group in return for their investment, resulting in them being a connected party for corporation tax purposes. There are several provisions within the tax legislation which may restrict either the quantum or the timing of the interest deduction, particularly where there is

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