1Introduction
1.1 The main aim of the Buyer is to ensure that he receives any sums due from the Covenantors no later than the Company has to make the payment of the relevant Tax Liability. There is then no cash flow loss to the enlarged Buyer’s Group. This is the central theme of the section of the tax covenant dealing with the date when payment is required from the Covenantors. 1.2 A gap of three to five days is normally considered to be a reasonable period for the payment to be made by the Covenantors, once notice has been served. This period is to allow time for cheques to clear. It would be possible to allow for a shorter time interval following the receipt of cleared funds, if this was a matter of concern in a very large transaction. 1.3 It is understandable that the Covenantors should only be required to make payment once they have received details in writing of the claim: due to the underlying power of the covenant it is not satisfactory for the Buyer to demand a payment from the Covenantors without providing details of the subject matter of the claim. 1.4 Where the Tax Liability does not involve an immediate payment to the Tax Authority, as the Tax Liability relates to the reduction or loss of one of the Buyer’s Reliefs, it is then rather more difficult to define the underlying cash flow implications.
2Actual Tax Payment
(a) in a case that involves an actual payment of or in respect of Tax five Business Days before the date on which such actual payment is due to be made to the relevant Tax Authority; or 2.1 If it is identified that there is a Taxation Liability then it is quite possible that this is identified and notified to the Covenantors sometime before the date when the tax is payable. If this is the case, then the Covenantors are not under an obligation to make payment until 3-5 days before that date. However a late payment will trigger a charge to interest.
3Reduction or Loss of a Deferred Tax Relief
(b) in a case that falls within paragraph (i) of the definition of Tax Liability (use or loss of Deferred Tax Relief ), five Business Days prior to each date when a Taxation Liability becomes payable which would not have been payable had the Deferred Tax Relief been available;
3.1 This wording can best be explained by an example, as once again we are considering deferred tax concepts: Badwell Ash Software Limited has £50,000 of tax trading losses
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