All businesses experience peaks and troughs. And when the time comes, having an exit strategy in place for your client is vital to ensure you extract as much value from the business to the benefit of your client, their employees, and their business model.
Fail to prepare, prepare to fail.
For the purpose of this blog, we will be focusing on stage five of the business lifecycle, a concluding business.
As you know through the last three blog posts that have covered this topic, undergoing tax reviews (or what we like to call them; tax diagnostics) is the way to go about extracting value from a business in a tax efficient way. And becoming more tax efficient, means your clients will increase their savings as a business and personally as business owners.
Now, a business in its concluding stage qualifies for a Concluding Business Tax Diagnostic.
Need to catchup?
If you haven’t seen our three previous blog posts on this series, we recommend viewing them in the order listed below:
This will get you up to speed and enable you to fully understand how you can optimise your clients tax efficiency through the different Tax Diagnostics needed at each stage of a business's lifecycle.
THE WHO, THE WHY, AND THE WHEN
Who qualifies for a Concluding Business Tax Diagnostic?
A Concluding Business Tax Diagnostic refers to a business that is in the final stage of their business lifecycle. The business has been profitable and the owners plan to exit the business over the coming years.
Why may a business be entering this stage of their lifecycle?
There are several reasons as to why they have entered this stage of the business lifecycle. But here are a few examples:
They want to sell to a third party
Pass ownership to the owners’ children
Undertake a management buyout
Cease trading
Business model is no longer viable due to market conditions
When is it best to conduct a Concluding BusinessTax Diagnostic?
To allow the business and its owners to have sufficient time to plan ahead, we recommend that a TConcluding Business Tax Diagnostic is done 3 years+ before exit to ensure correct planning, preparation, and implementation to ensure a smooth transition.
THE WHAT
What does aConcluding Business Tax Diagnostic cover?
This Tax Diagnostic provides a 360 review of a business. Now, why is this important? Because it highlights tax issuesacross all areas of tax.
For Diagnostax subscribers, you can complete this through using your Tax Diagnostic software.
To ensure that you achieve the best results for your clients, we recommend that 7 out of 9 Tax Diagnostic sections are completed. This won’t take longer than 60 minutes to complete.
A Tax Diagnostic is considered a tax advice service and therefore, you can charge your clients for this service. Our DTX’ers charge £2,000+ for this tax advice service.
As you’re an accountant and business owner, I know that your time is precious. And the most efficient use of your time is to ensure that you have the right tools to help you identify, diagnose, and deliver effective tax advice to your clients.
I know what you’re thinking.
“But what specific tax issues will be covered in a Concluding Business Tax Diagnostics?
And,
Do you have tax advice on how to approach these issues?”
The tax issues covered in a Concluding Business Tax Diagnostic
Issue: Director & Employee Incentives
This will consider 32+ ways in which a business owner can extract value from their business whilst they continue to run it.
This can range from trivial benefits, such as a gift voucher, to purchases of a company car for a director.
Usually these are areas which the accountant or business directly can put in place themselves.
Issue: Business Sale, Shareholder Exit or Cessation This will consider the most tax efficient way to sell a business, trade, business division or subsidiary or cease a business.
You will select which options they are considering for their End Game or may wish to include all options so the client can consider them.
This can range from calculating the gain, availability tax reliefs to reduce any tax due and key planning considerations.
The tax advice engagements may involve:
Advice on the availability of Business Asset Disposal on a sale of shares – consider deferred consideration, still being employed for a set period etc.
Advice on substantial shareholding relief (SSE)
Advice on establishing an employee ownership trust (EOT)
Advice on the winding up of the business and tax treatment of the proceeds with consideration of anti-avoidance rules
Issue: Succession and Retirement Planning
This will look at the inheritance position of the business owners' estates to ensure they remain tax efficient post the exit.
This can range from tax reliefs available to reduce the value of the estate for Inheritance Tax (IHT) purposes to lifetime gifts. The tax advice engagements may involve:
IHT review of the business owner and their spouse / civil partners estates to identify current IHT and potential savings they can make via tax reliefs
Business Property Relief review – advice on the availability pre and post exit depending on plans for the business long term
IHT advice on gift of shares and tax reliefs available on gifts
Note: this Tax Diagnostic only covers the IHT position in relation to the company shares. If your client wants a full IHT review, they will need to do an Individual Tax Diagnostic as well.
Contact your Customer Success Manager for support on this.
Issue: Capital Investments and Disposals
This where you will review any capital investments and disposals planned by the business.
This can range from tax reliefs available on the purchase of capital investments to the availability of tax reliefs on the sale of business assets.
The tax advice engagements may involve:
Advice on the sale of business assets and availability of tax reliefs
Advice on the VAT implications of a capital disposal
Capital allowances advice on the purchase of a capital investment
Issue: Trading Activities and Profits
This will highlight potential tax reliefs to reduce the taxable profits of a limited company.
This can range from R&D Tax reliefs to employer pension contributions.
The tax advice engagements may involve:
Advice on the R&D Tax Relief Claim
Advice on a Patent Box Claim
Advice both R&D Tax Relief and Patent Box Claim – consideration of the interactions to ensure maximum benefit is received by the company
Advice on the availability of loss relief and the most efficient way to utilise the losses available
Issue: VAT This will review the VAT position of the company and if there are any suitable schemes which the business could benefit from.
This can range from VAT registration or deregistration to VAT compliance.
The tax advice engagements may involve:
A VAT compliance review
Advice on VAT registration or deregistration
Advice on VAT groups
THE HOW
Host Impact Meeting with Client
After collecting all this information, you will want to hold an impact meeting with your client. This way, you can discuss in detail the tax issues that came up following their Concluding Business Tax Diagnostic and identify next steps.
Now, how do you prioritise which tax issues to talk about in the impact meeting? Use the below tips. Tips from a Chartered Tax Adviser in identifying which tax issues to focus on
Consider the goals set out in the Discovery form for the business and its owner in relation to their life plans and exit of the business.
Look into when they want to sell, what their plans for sale are (such as do they have a buyer lined?), how much is their business worth, what do they want to do post business exit etc.
Consider whether they intend to buy or sell capital investments before exit.
Consider whether their corporate structure has been reviewed – does it meet their end game goals?
Consider if they are registered for VAT, likely to meet the VAT threshold any time soon or if they have any concerns over the way VAT is charged.
Consider if the business owner needs to assess the value they extract from the business and their package between now and exit.
Consider if the business has any HMRC enquiries open or any issues with their tax affairs.
THAT'S A WRAP 🙌
I hope you enjoyed reading the last blog of this series and are feeling better equipped in completing Tax Reviews, or Tax Diagnostics as we call them.
It’s important that the main takeaway you take from this blog post series is that depending on your client's business lifecycle stage, will directly impact the Tax Diagnostic in which they qualify for and ultimately, how tax efficient they can be.
Remember, by achieving higher tax efficiency for your clients, they will increase the savings made for their business and personally to them as business owners. And this will positively influence their cashflow, a goal for every accountant is ensuring their clients have a healthy cashflow, and a healthy cashflow = satisfied clients.
Open to seeing how Tax Diagnostics can optimise your client’s tax efficiency?
Button: Book Discovery Session