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Don’t let the tax tail wag the commercial dog

What is meant by the saying “Don’t let the tax tail wag the commercial dog”?

Some clients are so concerned with minimising their tax liabilities, and their advisers so eager to please, that sometimes there is a danger of losing sight of the overall commerciality of the proposed transactions.
Examples which this writer has come across include:

  • Property and share valuations. It can be the case that having taken into account available reliefs and exemptions, the additional capital gains tax payable by simply accepting HMRC’s proposed valuation is cheaper than engaging a valuer to argue the point.
  • Demergers. Preparing clearance applications for a statutory demerger can be a time-consuming and costly business especially when there are no significant real or latent tax liabilities in the business structure being demerged!
  • Incorporation. This may depend upon the nature of the business but do the tax benefits of incorporation outweigh the extra time needed to be found to deal with the additional regulatory issues, compliance and red tape?
  • Sale of a business. The legal and professional costs involved in selling a company usually far outweigh those for selling a trade and assets. Do the tax savings justify the first alternative? Will the vendor be kept awake at night worrying about the warranties and indemnities?

Sometimes the client is prepared to incur the cost of pursuing a particular tax outcome as “a matter of principle” or out of sheer stubbornness and that of course is a matter for the client to decide. In which case it is to be hoped that the tax adviser has first fully appraised the client of the relative pros and cons of the alternative courses of action.

Article from Croner Taxwise December 2016

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