In McEnroe & Newman v HMRC [2023] UKUT 255, the Upper Tribunal (UT) refused the taxpayer's appeal on the basis that the First Tier Tribunal (FTT) had not erred in law in failing to interpret a Share Sale & Purchase Agreement (SPA) in a manner that reduced the consideration by over £1 million.

  • The appellants sold their shares in Kingly Care Partnership Limited in 2013. They were sole shareholders.
  • The consideration was £8 million, as agreed by the buyers (Active Assistance Finance Limited) and as stated in the SPA. This was subject to a potential working capital adjustment and an Earn-out.
  • At the time, the business had an outstanding loan with Allied Irish Bank (AIB) which could be redeemed for approximately £1.1 million. It was anticipated that this would have been settled by the time of the sale and was not specifically mentioned in the SPA in terms of consideration.
  • At the time of the sale, the buyers paid £1.1 million directly to AIB and the remainder (less fees and charges) to the sellers.
  • The appellants each filed their tax returns showing Capital gains based on receiving half of approximately £6.9 million.
  • HMRC issued Closure Notices assessing the gains based on the total consideration of £8 million plus later working capital adjustments and earn-outs (which were not in dispute).
  • The appellants appealed to the FTT on the basis that the £8 million was made up of the debt repayment and the share consideration which was the remainder. They argued that they should not be taxed on the full amount as they had not received it all.
  • The FTT dismissed the appeal and held that:
    • The SPA did not address the debt and the £8 million related to the share consideration only.
    • Just because the full amount was not received did not mean that they were not entitled to it.
    • If they were not entitled to it, the SPA did not reflect this but as this was not part of the appeal it was not relevant.

The appellants appealed to the UT on the basis that the FTT had failed to consider that the SPA did not correctly reflect the allocation of the consideration and they should have interpreted the SPA accordingly to give effect to the parties' intentions. They argued that clause 3.3 and Sch 7 regarding the amendment of the consideration based on the completion accounts implied such an amendment. 

The UT held that:

  • Neither of the parties suggested in the initial appeal that clause 3.3 did or should amend the consideration.
  • The FTT was aware of the clause and had considered it as much as necessary given that it was not in dispute.
  • The FTT was under no obligation to consider whether an adjustment to the consideration was required.
  • HMRC were correct to contend that this latest appeal was a veiled attack on the FTT's findings of fact.

The appeal was dismissed.

Useful guides on this topic

CGT: How to calculate a capital gain or loss
How do you calculate a capital gain or loss? What costs are deductible? Can you set losses against capital gains?

Selling the business: Deferred consideration and earn-outs
When a company is sold via a share purchase the buyer may hold back or defer paying the whole of the purchase price until certain agreed conditions are satisfied or profit targets are met. What are the tax implications of this?

External links

McEnroe & Newman v HMRC [2023] UKUT 255

McEnroe & Newman v HMRC [2022] TC08444

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