Negotiating a Business Sale – Avoiding Expensive Tax Mistakes

Posted: September 16, 2026

After years of building your business, receiving an offer can be an exciting milestone. However, this is also the stage where expensive tax mistakes are most commonly made.

The structure of a sale can have a significant impact on the amount of tax you pay, the timing of that tax and the risks you retain after completion.

Many of these issues become difficult – or impossible – to change once heads of terms have been agreed. Taking tax advice as part of your exit planning, before negotiations are finalised, can therefore make a substantial difference to your net proceeds.

One of the first questions is whether the buyer is acquiring:

the shares in your company; or
the business and assets owned by the company.

Most shareholders prefer a share sale because:

it is often simpler;
the company continues to own all of its assets and contracts;
there is usually only one layer of tax for the seller; and
it may allow the seller to claim Business Asset Disposal Relief (BADR), subject to the qualifying conditions.

Asset Sale

Buyers frequently favour an asset purchase because they can select which assets and liabilities they wish to acquire.

However, for the seller this can lead to:

Corporation Tax on any gains realised by the company;
a second layer of tax when the proceeds are extracted from the company;
additional VAT and Stamp Duty Land Tax considerations; and
a more complex transaction.

Understanding the tax implications before agreeing the transaction structure is essential.

Review Your BADR Position

Business Asset Disposal Relief can reduce the rate of Capital Gains Tax payable on qualifying disposals.

Before contracts are exchanged, it is important to confirm that all the qualifying conditions are satisfied, including:

the required shareholding;
voting rights;
employment or office-holder status;
that the company is a trading company (or the holding company of a trading group); and
that the conditions have been met throughout the relevant qualifying period.

Discovering a problem after completion is often too late to correct. For more detail on the current conditions, see Business Asset Disposal Relief in 2025: Are You Still Eligible?

Earn-Outs – Think Beyond the Headline Price

Many business sales now include deferred consideration or earn-out arrangements.

Although these can increase the overall value of the transaction, they also introduce additional tax and commercial considerations.

Questions to consider include:

Will the earn-out be taxed as capital or income?
Is the amount fixed or dependent on future performance?
How will any future adjustments be taxed?
What happens if the buyer sells the business?
Is security available for future payments?

The highest offer is not always the best offer if the payment terms are uncertain.

Cash, Loan Notes or Shares?

Not every sale is paid entirely in cash.

Consideration may include:

cash;
loan notes;
shares in the acquiring company; or
a combination of these.

Different forms of consideration may result in different tax treatments and different timings for when tax becomes payable.

Understanding these consequences before agreeing the terms can avoid unexpected tax liabilities.

Working Capital Adjustments

Many sale agreements include adjustments for:

cash balances;
debt;
stock;
work in progress; and
normalised working capital.

These adjustments can significantly affect the amount ultimately received by the seller.

Business owners should ensure they fully understand how these calculations operate before signing the sale agreement.

Warranties and Indemnities

Most buyers require extensive warranties and, in some cases, specific tax indemnities.

These may expose the seller to future claims if unexpected liabilities arise after completion.

Obtaining professional advice on the scope of these provisions is just as important as negotiating the purchase price.

Clear Directors’ Loan Accounts

Outstanding directors’ loan accounts should be reviewed before completion.

Issues commonly encountered include:

overdrawn loan accounts;
unlawful dividends;
undocumented balances; and
loans between connected companies.

These matters can complicate due diligence and may delay the transaction if not resolved early. They are also attracting closer attention from HMRC, as we explain in HMRC Clamps Down on Directors’ Loan Accounts.

Watch Out for Property

Where the trading company owns commercial property, additional planning may be appropriate.

Questions to consider include:

Should the property be retained personally?
Is a pre-sale reorganisation appropriate?
What are the Capital Gains Tax and Stamp Duty Land Tax implications?
Will rental income continue after the business has been sold?

These decisions should usually be considered well before contracts are exchanged.

Don’t Forget Your Estate Planning

A successful business sale may significantly increase your personal wealth.

Once the proceeds have been received, consider:

Inheritance Tax planning;
pension contributions;
family gifting strategies;
trusts where appropriate;
Family Investment Companies; and
wider investment planning.

Early advice can help preserve wealth for future generations. We cover this stage in more detail in After a Business Sale – Investing, Inheritance Tax Planning and Protecting Your Wealth.

Common Mistakes We See

Some of the most common and costly mistakes include:

accepting heads of terms before taking tax advice;
assuming every business sale qualifies for Business Asset Disposal Relief;
overlooking the tax treatment of deferred consideration;
failing to resolve directors’ loan accounts before due diligence;
agreeing unnecessary warranties or indemnities;
failing to separate non-trading assets before marketing the business; and
focusing solely on the headline price rather than the after-tax proceeds.

How RJP LLP Can Help

At RJP LLP, we work alongside business owners, solicitors and corporate finance advisers throughout the sale process to ensure tax considerations are addressed before key commercial decisions are made.

Our support includes:

reviewing the proposed transaction structure;
confirming eligibility for Business Asset Disposal Relief;
advising on earn-outs and deferred consideration;
reviewing directors’ loan accounts;
identifying opportunities for pre-sale restructuring;
liaising with legal advisers during negotiations; and
helping clients maximise the amount they retain after tax.

Selling a business is often a once-in-a-lifetime event. Taking advice before agreeing the commercial terms can significantly improve the outcome and help you avoid expensive mistakes that cannot easily be corrected later.

If you are considering selling your business, contact your usual RJP LLP adviser before signing heads of terms. Early planning can make a substantial difference to both your tax position and your final sale proceeds.