According to Cheltenham-based tax and audit specialist, Bishop Fleming, the private equity market across the UK has faced challenges over the last couple of years, due to 'global economic uncertainties'.
These have led to a drop in 'deal confidence and a decrease in valuations', across most business sectors.
In Gloucestershire specifically, this continued challenge has seen a 20 per cent drop in the number of business deals, with many businesses struggling to find investment to further their growth and expansion.
Bishop Fleming says it is now more important than ever 'to be prepared for a transaction and have your house in order', ready for a deal.
Graham Charlton, tax partner at Bishop Fleming, said; 'Some tax areas where we typically see companies needing support in the run-up to a deal process include management equity plans; tax planning; international growth; and due diligence ready.' Here's how the firm can help...
Management Equity Plan
As part of any sales transaction, it is likely that a buyer will ask company management to 'reinvest value into the new vehicle' – and businesses need to think about where this value is coming from.
Management teams who hold an equity interest in the business, either through share options or direct holdings, are very often the first port of call for 'rolling over value'.
Graham said: 'In the absence of an existing management equity plan, bonuses or loans could be used, but these are not as tax-efficient for the individual or the company.
'It is, therefore, important to give thought to the appropriate management incentivisation plan in the years ahead of any transaction, to ensure that any value is delivered in a tax-efficient manner for both the individual and the company.'
Tax Planning
Shareholder tax planning in the run-up to a transaction can be difficult, according to Graham. 'If gifts of shares to a trust are to be considered, this needs to be done well ahead of any transaction to ensure the tax benefits are captured,' he said.
'This is particularly timely with the upcoming changes to Business Property Relief. We are increasingly seeing people consider whether they roll over value in a tax-efficient manner (that is, don’t pay tax on the value you are leaving in the company) or whether they protect themselves from future changes in the rate of Capital Gains Tax and pay everything upfront.'
International growth
With businesses looking internationally for growth, there are a number of international tax angles to consider.
Graham said: 'If you have senior people or equity holders in the US, tax rules around changes in control can cause significant delays to the process if preparation is not put in.
'There can also be significant tax risks in continental Europe, where tax authorities are increasingly challenging equity plans as being subject to income tax and therefore attracting social security.'
Due Diligence Ready
Finally, as with any business transaction, expect a significant amount of due diligence to be performed on your company — being ready for that process can greatly reduce the amount of time or added stress on finance teams.
Graham suggests keeping accurate records of items such as tax elections, claims and tax returns, as these can greatly assist the process.
To speak to an advisor about navigating the complexities of private equity deals, call the experts at Bishop Fleming on 01242 505970 or visit bishopfleming.co.uk.
