The most expensive ‘simple’ mistake I saw recently

By Tom Coates

The last week of the tax year is always ‘one of those weeks’. Phones were constantly going, completions were stacking up, and documents were moving back and forth at a slightly unhealthy pace. It’s the sort of week where everyone is simply trying to get deals done.

The reason was obvious. The 5 April changes to Capital Gains Tax created a very real deadline. For many sellers, that date was not just a line in the sand, it was a financial cliff edge. Complete in time and the tax outcome looks one way, miss it and the position worsens. Unsurprisingly, there was a strong push to complete transactions before the deadline. Sellers were pressing, buyers were reacting, and advisers were doing their best to keep matters moving.

That in itself is nothing unusual in a deadline driven market. What did surprise me, and genuinely stagger me, was something else entirely.

When ‘specialist’ advice isn’t

In the space of a week, I saw two separate transactions where sellers had been given fundamentally flawed advice by accountants who were presented as specialists. In both cases, the issue was the same. The clients had significant retained cash sitting within their companies. In one case, the figure was just over £1 million.  How do we extract that cash in a tax efficient way was their main concern.

The advice given by the Accountants was to extract that cash by way of dividend prior to completion, pay the associated tax, and then proceed with the sale of the company.

It is worth pausing on that for a moment.

This is not a marginal point. The decision made here is the difference between taking the cash as proceeds of sale and paying Capital Gains Tax (CGT) on it, or taking it as a dividend at dividend tax rates.  Those were the two choices. The financial impact of getting that wrong can be huge and  in the cases I saw, it could have cost the clients tens of thousands of pounds.

Thankfully, in both situations, the clients  asked us what we thought. Something did not quite sit right with them. They asked questions, sought a second opinion, and ultimately the position was corrected. However, it should not have required that level of intervention.

‘We don’t advise on tax, but…'

As solicitors, we are always clear that we do not provide tax advice. That is not our role, and good transactional work depends on each adviser remaining within their own area of expertise.

However, there is a difference between not advising on tax and recognising when something appears commercially or structurally wrong. When you’ve lived and breathed as many  transactions as I have, you develop a sense for what is typical, what is sensible, and what does not align with how deals are normally structured.

What last week demonstrated was one of those situations where something simply did not align and we had to inform our clients of such.

The gap nobody talks about

There is a significant difference between a competent accountant who handles compliance, accounts, and general advisory work, and an accountant who has genuine transactional experience.

Most dental practice owners will have long standing relationships with their accountants. Those relationships are often built over many years and are based on trust. In the context of running a business on a day to day basis, that trust is usually well placed.

However, a company sale is not a routine event. It is a transaction, and transactional work is a different discipline. It requires an understanding of how deals are structured, how buyers approach value, how different extraction methods are treated, and how timing interacts with tax. Crucially, it requires experience of seeing how all of those elements come together in practice.

That experience does not come from preparing annual accounts. It comes from being involved in transactions repeatedly, and understanding where the risks and opportunities sit.

The cost of getting it wrong

What struck me most about these two situations was how easily the outcome could have been different. There were no obvious warning signs, no dramatic red flags, just advice delivered with confidence at a point where the client was focused on getting the deal completed before a tax deadline.

That is precisely how costly mistakes happen. Quietly, efficiently, and with the best of intentions.

It really reinforced my belief that when embarking on such a life-changing and significant venture, it’s so important to have the right team people around you who really know what they are doing, truly understand the complexities and nuances of the situation, as well as grasping the bigger picture.

A difficult conversation, but a necessary one

There is also a human element to this. Changing advisers, or even questioning them, is not straightforward, particularly where there is a long standing relationship. Many business owners quite understandably default to the advisers who have supported them over the years. I understand only too well that people tend to like their Accountants as they are perceived as having saved them money over the years. If only Solicitors inspired such affection and loyalty amongst their clients!

However, a company sale is not the moment to rely solely on familiarity. It is the point at which you need to ensure that everyone involved has relevant, real world experience of transactions, not just of ‘doing the Accounts once a year’. That does not necessarily mean replacing existing advisers, but it may mean supplementing them or seeking a second opinion on key issues.

The takeaway

If there is one takeaway, it is this. When you are selling a business, the detail matters, and the experience of your advisers matters just as much. The difference between good advice and poor advice is not always immediately obvious, but the financial consequences can be very real.

In both of the situations I encountered, the clients ultimately arrived at the right outcome. But that was only because they had the confidence and trust to listen to our instinct that something didn’t look quite right and challenged the advice they had been given.

Thankfully in the mad rush to Completions,  two expensive mistakes were avoided and two clients have significantly more money in their pockets today than they could have done.