been carried back against the profits for the year to 31 December 2007 and the tax reduction as a result is £32,750. Therefore the tax liability that is payable to H M Revenue and Customs is reduced from £44,700 to £11,950. 2.28 The Tax Covenant specifies that an accounting period was deemed to come to an end at Completion; it also specifies that the period to which the tax losses can be carried back is deemed to be, firstly the period from the Last Accounts Date to Completion, and secondly the actual period of 12 months before the Last Accounts Date allowed under Section 393A, ICTA. 2.29 With the above example, Mr and Mrs Newman have been advised to carry back tax losses as this is the quickest way of getting the cash flow benefit of the tax effects of the losses. Mr and Mrs Olde are due to pay £44,700 under the tax deed in respect of the extra tax liabilities due to the errors in the self assessment returns. They neither gain nor lose from the arrangements in which Mr and Mrs Newman carry back the tax losses. Mr and Mrs Newman gain some benefit as the losses are relieved at a relatively high rate. 2.30 It should be noted that this situation has a possible impact on the tax rates for the period between Completion and the end of the following accounting period: the existence of the extra companies under the control of Mr and Mrs Olde would cast its shadow forward and taint the tax rates applicable to profits in the period immediately following Completion as the number of associated companies has an impact on the whole of that accounting period. This is a rather peculiar set of circumstances and is therefore not a matter of general concern. 2.31 As the use of a Post-Completion Relief is not a direct cash flow event, the measure of the loss has to be the amount of tax that is no longer payable as a result of the use of that Post-Completion Relief; the timing of the loss is based on the timings of the tax payments that would otherwise be required. (d) 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, whenever arising, of the Buyer or any member of the Buyer’s group other than the Company (“ Buyer’s Group Relief ”). 2.32 This is probably the least contentious of the various components of Buyer’s Reliefs: if the Buyer or a Company in the Buyer’s Group is able to transfer losses to the Company to cover a liability that would otherwise be the subject of a claim against the Covenantors, it is understandable that the Covenantors should still be considered to have a liability under the tax covenant, even if the liability to HMRC has been extinguished. 2.33 The most obvious example is group relief within 75% groups, under the provisions of Section 402, ICTA: it is possible for a group member making losses to surrender those losses to cover profits made elsewhere in the group in the same accounting period. Buyer’s Group Relief
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