I have a client trying to sell their company and are most definitely trading - profits vary between £100k and £200k per annum.
Their balance sheet gross assets are say around £600k of which £550k of this are cash balances. Their customers pay reasonably quickly, their expenses are mostly wages/sub contractors and they hold no stock.
If they sell their shares can you see any problem with them claiming ER?
Replies (8)
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Does the balance just sit there in a current account or deposit account or is it actively managed in order to maximise returns?
Very unlikely to be a problem. For ER to be at risk there must be a non-trading activity that exceeds 20% of the whole. As a passive investment the prospect of a problem is almost nil. Even if active (hence Duggimon's question) it probably would not cross the line.
However, don't expect the purchaser to pay an additional £550K just because the company has £550K of cash in it.
Why not? Purchasers are normally happy to pay for cash £1 for £1 as they will then extract the cash to help fund the deal.
Why not? Purchasers are normally happy to pay for cash £1 for £1 as they will then extract the cash to help fund the deal.
But surely, any non corporate purchaser would have to pay tax on any cash withdrawn to fund the deal?
Agreed but most purchasers are corporates to begin with. Any individual purchaser should normally be buying via a company as well even if he has the cash (unusual) to buy without borrowing.