3.2 As the clause above includes a negative, it may help understanding if it is dissected by means of an example: taxable profits of £80,000 have arisen in Claydon Vehicle Spares Limited two years after Completion. Therefore there is no claim against the Covenantors in respect of the potential tax liability. Happily there are tax losses of £200,000 which were not included within the deferred tax account due to uncertainty as to recovery. In the tax covenant it was accepted that these were a Seller’s Relief. This Seller’s Relief is being utilised and there is no tax payable by the Company as a result. At a rate of 30% the tax saved is £24,000. 3.3 In the above example, the use of the Seller’s Relief does not provide an immediate cash benefit to the Covenantors. Rather it acts as a cushion and is only of benefit if there are other claims under the tax covenant against which the £24,000 can be offset.
3.4 The definition of Seller’s Relief above defines it by reference to what it is not. Therefore we would like to give examples of some of the types of Seller’s Reliefs which may exist:
3.4.1 trading tax losses carried forward and not recognised through the deferred tax account, as in the example above;
3.4.2 capital losses carried forward, which would almost certainly not be recognised in the deferred tax account;
3.4.3 a new deferred tax asset created as a result of adjustments to the tax computation after completion: an example might be a taxed bad debt provision if it is decided after Completion that a bad debt provision is general rather than specific; alternatively repairs may have been disallowed by HMRC but this increases the capital allowance pool;
3.4.4 an Understatement.
3.5 As an Understatement is effectively a form of Seller’s Relief it is arguable that there is no need for it to be separately defined.
4Corresponding Savings
8.1.4a Corresponding Saving arises .
4.1
The definition of Corresponding Saving is:
“ Corresponding Saving ” means a Relief which arises from a Tax Liability which has resulted in a payment by the Covenantors falling due under this Tax Deed and that Relief is utilised; 4.2 In the foreword we gave the example of the additional NIC and VAT Liabilities of Stowmarket Warehousing Limited aggregating to £9,300. Such Tax Liabilities are deductible within the corporation tax computations of the company, on the basis that they are incurred wholly and exclusively for the company’s trade. The Buyer is able to recover the extra taxes of £9,300 from the Covenantors. However, it is recognised that the taxable profits of the company are reduced by £9,300 as a result of the two
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