TAX COVENANTS
CONTENTS
CHAPTER ONE .................................................................................................................... 1 UNDERSTANDING ACCOUNTS ...................................................................................... 1 Executive Summary ........................................................................................................... 1 1 Introduction ............................................................................................................... 2 2 Jane’s Windsurfing - A Simple Example .................................................................... 2 3 Jane’s Windsurfing Limited...................................................................................... 10 4 Financial Statements of Limited Companies ............................................................ 13 5 Liabilities and Provisions ......................................................................................... 15 6 Taxation Liabilities and Assets ................................................................................ 16 CHAPTER TWO ................................................................................................................. 18 CORPORATION TAX COMPUTATIONS - A PRIMER .................................................... 18 Executive Summary ......................................................................................................... 18 1 Introduction ............................................................................................................. 19 2 Tax Computations ................................................................................................... 20 3 Capital Allowances .................................................................................................. 24 4 Group Relief and Consortium Relief ........................................................................ 25 5 Trading Losses........................................................................................................ 25 6 Chargeable Gains ................................................................................................... 26 7 Payment of Corporation Tax.................................................................................... 27 CHAPTER THREE ............................................................................................................. 29 DEFERRED TAXATION - WHAT IS IT? .......................................................................... 29 Executive Summary ....................................................................................................... 29 1 Introduction ............................................................................................................. 30 2 The Accounting Standards ...................................................................................... 35 3 Timing Differences................................................................................................... 37 4 The Discounting of Deferred Tax Liabilities ............................................................. 38 5 Deferred Tax Relief - One of the Buyer’s Reliefs ..................................................... 39 6 The Deferred Tax Liabilities..................................................................................... 41 CHAPTER FOUR ............................................................................................................... 44 SOME TAX IMPLICATIONS OF CORPORATE TRANSACTIONS ................................. 44 Executive Summary ....................................................................................................... 44 1 Introduction ............................................................................................................. 45 2 The Carry-Back of Tax Losses ................................................................................ 45 3 Degrouping Charges ............................................................................................... 47 4 The Disallowance of Trading Losses after Completion ............................................ 49 5 Inheritance Tax Payable by a Company .................................................................. 50 6 Tax Covenants in Respect of Stamp Duty ............................................................... 52 7 The Tax Position of the Sellers ................................................................................ 52 8 Earn Out Consideration ........................................................................................... 54 9 Entrepreneur’s Relief............................................................................................... 56 10 Tax Position of the Buyer ........................................................................................ 57
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