Sales of hotels and care homes – accounting mistake cost seller hundreds of thousands of pounds in additional tax

The judgment on 19 October 2023 in McEnroe & another -v- Revenue & Customs Commissioners is a timely reminder that share purchase agreements need a detailed review to ensure that the accounting mechanics achieve the intended result of the parties.

In the above case, the taxpayer ended up paying tax on an additional £1.1m of proceeds never received by them.

This arose in respect of a debt free cash free disposal of £8m, however, the accounting mechanics were not correctly recorded in the share purchase agreement with the result that following a tax enquiry, the First Tier Tax Tribunal made the finding that the full £8m was taxable, notwithstanding that the parties had agreed that a lower sum was payable as a result of debts of the target company.