Company; the Company is obliged to account to HMRC for the PAYE and employers’ and employees’ NIC that should have been paid.
7.3 The Covenantors make payment to the Buyer under the tax covenant in respect of the additional tax and also in respect of the professional fees spent in dealing with the enquiry. In due course the Company is reimbursed by the various associates for most of the tax and a payment is made by the tax investigation insurance plan in respect of the costs.
7.4 It is understandable that the Buyer wishes to have payment from the Covenantors in respect of these unforeseen tax liabilities, assuming that no provision for these costs was made in the relevant accounts. It is also understandable that the Covenantors then expect to be reimbursed to the extent that the Company then receives funds from the various third parties involved. 7.5 The above wording again refers to a payment falling due, rather than a payment being made: it is quite possible to envisage situations in which the Recovery is received very quickly and that the Covenantors are therefore obliged to pay the net amount to the Buyer.
7.6 The way that the above example is structured demonstrates the close adherence of the tax covenant to the cash flows of the underlying transactions.
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“Relief”
1.2.7 “Relief” includes, but is not limited to, any relief, loss, allowance, credit, set off, deduction or exemption for any Tax purpose and any right to a repayment of Tax. 8.1 This definition is related to Buyer’s Reliefs which are dealt with above. However, it is also the defining word in respect of Corresponding Savings and Sellers’ Reliefs. Its breadth therefore serves the interests of both sides in the transaction. It is a very broad definition and is best considered by reference to examples of matters which are included within it:
8.1.1 any tax loss up to Completion, possibly included as part of a deferred tax balance within the Last Accounts or Completion Accounts;
8.1.2 other of the examples of debit balance components of deferred taxation, such as capital allowance pools as available at Completion;
8.1.3 any tax recoverable, possibly included as an asset in the Last Accounts or Completion Accounts;
8.1.4 trading losses arising after Completion;
8.1.5 losses made in other companies which may be relevant if they feature as group relief.
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