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Sale of business

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Good afternoon all,

I wonder if anyone can point me in the direction of an answer for this scenario please.

A sole director/shareholder sells his LTD business to someone else. An SPA is signed, shares transferred and cash agreed. All is good and I understand the tax implications of that.

Subsequently the new owner uncovers various issues not declared at point of sale and claws back part of the sale value - my question now is, is the outgoing client still taxed on the original sale value, or can the clawback be taken into account as a reduction?

Logic wants to say it's now the lower value, but tax rules don't always follow logic....

I appreciate this is a very busy time of year so I appreciate anyone who has the time to point me in the right direction.

Many thanks

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Stepurhan
By stepurhan
20th Jan 2017 14:56

Legal questions first.

Did the sale contract actually have claw-back provisions in it? If so, how were those provisions worded? If not, on what basis has the new owner claimed back part of the sale value?

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Replying to stepurhan:
By Ruddles
20th Jan 2017 15:13

Spot on

Most properly-drafted SPAs will provide that any clawback is to be treated as a reduction in the consideration. But you'll need to establish exactly what mechanism is involved in this case.

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Maytuna
By DJKL
20th Jan 2017 14:59
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By BudgetB
20th Jan 2017 15:33

Thank you all for your responses, the article has provided some very useful info.

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