At TaxGem, we pride ourselves on delivering tax advice that is not only technically sound but also tailored to the unique needs of our clients. Recently, we had the opportunity to guide UK Event Medical Services Ltd through a significant transaction, helping one of their shareholders exit the business in a tax-efficient manner while ensuring minimal disruption to the company’s operations.
This project involved a Company Purchase of Own Shares (CPOS)—a complex and highly regulated process that allowed the exiting shareholder to sell their shares back to the company while the remaining shareholders maintained full control. Here’s how we made it happen.
Understanding the Client’s Goals
Our client, UK Event Medical Services Ltd, found themselves in a situation where one of the shareholders was looking to exit the business to pursue new opportunities. However, the remaining shareholders were keen to continue running the company without introducing any outside investors who could disrupt the strong relationships they had built with customers and within the business.
Given these priorities, we explored a CPOS as the most suitable option. This approach allowed the exiting shareholder to be bought out by the company itself, while the remaining owners could continue “business as usual.”
Navigating Strict Tax Requirements for CPOS
The key challenge in this transaction was ensuring that the exiting shareholder qualified for capital treatment rather than being taxed on the proceeds as income. Capital treatment was crucial because it allowed the departing shareholder to access Business Asset Disposal Relief (formerly Entrepreneurs’ Relief) and pay a much lower tax rate of 10% on the sale, compared to what they might have paid under income tax rates.
However, the rules governing CPOS are stringent. To achieve the desired tax outcome, we had to structure the transaction carefully, ensuring all conditions were met and navigating multiple criteria. This required a meticulous step plan and coordination with HMRC for clearance.
The Time Challenge: Beating the Budget Deadline
A significant challenge was the time pressure. With the UK government’s Budget scheduled for 30th October, the shareholders were understandably anxious to complete the transaction before any potential changes in tax legislation could negatively impact the outcome. Time was of the essence, but we were also at the mercy of HMRC to approve our clearance application.
This was a delicate balancing act—on one hand, ensuring all regulatory and tax requirements were met, and on the other, working against a ticking clock. We relied on our extensive experience and close attention to detail to expedite the process, while still meeting all necessary legal and tax obligations.
Accurate Valuation: Finding the Right Price
Another technical element of the transaction was conducting a fair and accurate valuation of the company. We used an earnings-based model, which applied a multiple to the weighted average of the last three years’ EBITDA. Adjustments had to be made for extraordinary items to ensure the valuation reflected the company’s true financial position.
This valuation not only helped the exiting shareholder receive a fair price but also ensured HMRC accepted the valuation for the purpose of granting clearance.
Collaborating with Legal Partners
A transaction of this complexity required close collaboration with trusted legal partners. We worked hand-in-hand with Napthens, who produced all the legal documentation in accordance with the step plan we devised. Their legal expertise ensured that the transaction was executed smoothly and that the legal documents were fully aligned with the tax strategy we developed.
Balancing Business and Personal Interests
While this transaction was highly technical, we never lost sight of the human element. By maintaining close communication with all parties, we ensured that both the exiting shareholder and the remaining shareholders felt understood and confident throughout the process. For the exiting shareholder, achieving the most favourable tax outcome was a priority. For the remaining shareholders, the focus was on preserving the integrity of the business and minimising disruption to day-to-day operations.
At TaxGem, we believe that successful tax advice goes beyond simply navigating the technical requirements—it’s about providing solutions that work for people. In this case, we delivered a smooth and timely transaction that not only met the technical requirements of HMRC and tax law but also supported the goals and aspirations of our client.
Final Thoughts
Every transaction has its unique challenges, and at TaxGem, we thrive on solving them with both precision and empathy. If you’re facing a tax situation that requires specialist advice or simply want to explore ways to structure your business more efficiently, we’re here to help.