Post-Completion Relief
(c) the loss or reduction in the amount of, or the setting off or use against income, profits or gains earned, accrued or received or against any Tax chargeable in respect of an Event occurring on or before Completion of any Relief which is not available before Completion but arises after Completion in circumstances where, but for such loss, reduction, setting off or use, the Company would have had a liability to make a payment of or in respect of Tax for which the Buyer would have been able to make a claim against the Sellers under this Tax Covenant (“Post-Completion Relief”) 2.18 This part of Buyer’s Relief is a very standard part of the modern tax covenant: the most obvious application of this Relief is the carry-back of trading losses under the provisions of Section 393A, ICTA. The drafting here is particularly impenetrable to those who are new to tax covenants: it is designed to cover a situation where the taxable profits in the periods to Completion increase due to an unexpected tax charge. However, this does not result in a larger cheque being despatched to HM Revenue & Customs (which would give rise to a claim under the covenant). The unexpected tax cost is masked as the taxable profits are reduced by losses that arise after Completion and are carried back to the pre-Completion period.
2.19 A form of wording which is rather more transparent and has much to recommend it is:
“the reduction or setting off against profits or against any Tax Liability in respect of which a valid claim could have been made under this covenant of any Relief which is not available before Completion but arises in the Company after Completion”
2.20 If the Company has been profitable prior to Completion but makes losses after that date, there may be the prospect of these losses being carried back to the pre- completion period under the provisions of Section 393A. If the accounting reference date was changed to the date of Completion, then losses in the 12 months after Completion could be carried back to reduce or eliminate the profits made in the 12 months prior to Completion. 2.21 In these circumstances it is understandable that the Buyer would still wish to be able to make a claim under the Tax Covenant if there would have been a claim apart from the carry-back of these losses. 2.22 It is relatively unusual for the accounting reference date to be the date of Completion: if this is not the case, then an accounting period for corporation tax purposes does not end on Completion: there are ten trigger points for the end of an accounting period in Section 10 CTA (formerly section 12, ICTA), but a sale of the entire share capital of the Company is not one of them. It is therefore very possible for profits to be made in the period from the Last Accounts Date to Completion, and for losses to be made thereafter. The corporation tax computations will therefore cover a period straddling Completion and will show either a net profit or loss for the entire period between the Last Accounts Date and the next Accounting Reference Date. As noted above, there will be no break in the tax computations as at Completion as an accounting period for
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