21.1 If those employees who had been incorrectly treated by Finningham Traders Limited as self-employed agreed to reimburse the Company for the PAYE and NIC costs suffered, then there would be no loss to the Buyer to the extent of the reimbursement. 21.2 The situation would be far more uncertain if it was believed that reimbursement would be made, but it did not take place very promptly after the date on which Finningham Traders Limited became aware of the unexpected liability. If this were to happen, then there would be liability under the tax covenant, but with the prospect of a later recovery. This is covered in chapter 14. 21.3 Another example of a situation which would be of relevance for this exclusion is the recovery of professional costs in respect of a tax investigation from an insurance policy taken out by the Company. Tax investigation insurance is increasingly common, especially amongst small and medium companies. 21.4 It is not reasonable to expect the Buyer to forego his claim under the tax covenant in the vain hope that some third party may reimburse the Company for tax suffered at some point in the future. If such a reimbursement therefore does take place at a later date, the Buyer will make a claim under the tax covenant and will then make reimbursement of the amount subsequently recovered. 21.5 It is possible that a member of the Seller’s Group or some other party may settle the tax in question directly with HMRC. This is covered by the final text in the above exclusion.
22 Tax Already Paid or Cleared
3.1.22such Taxation was discharged prior to Completion/ Last Accounts Date;
22.1 This appears to be an obvious exclusion to add to any tax covenant. Clearly the Covenantors should not be expected to make payment for any Tax Liability which was paid or cleared before Completion in respect of a Completion Accounts deal. 22.2 The tax covenant will often be drafted in such a way that the definition of Tax Liability will be related to obligations to make payment of tax only after the Last Accounts Date or Completion, as the case may be. If the tax covenant has been drafted in this way, then there is no specific need for this clause.
143
Made with FlippingBook Learn more on our blog