Why the Date on the Contract Could Cost You Thousands

Here’s something that surprises a lot of business owners. The tax you pay when you sell your company can depend heavily on exactly when the sale completes, not just how much it sells for.

Most owners spend months, sometimes years, focused on the headline price. They think about valuation, buyers, negotiations and life afterwards. Tax tends to arrive late in the process, almost as an afterthought. By then, the deal may already have closed off some of your most valuable options.

In this post, we’ll look at why timing matters so much, what “completion” means for tax purposes, and how staged payments can change the picture. We’ll also cover what you can do to stay in control.

Why Timing Matters More Than You Might Think

Tax rates on business sales in the UK have risen over the past couple of years, in stages. Further changes have continued since. Rules that applied to a sale last year may not apply to a sale this year, and next year may bring something different again.

That has a very practical consequence: two identical sales, completing just months apart, can result in very different amounts of tax. On a mid-sized deal, the gap can reach tens of thousands of pounds.

Imagine two owners selling near-identical businesses for the same price. One completes shortly before a rate change takes effect. The other completes shortly after. Same business, same price, same buyer profile. Yet one owner walks away with noticeably more money.

Nothing about the business changed. Only the date differed.

Timing therefore deserves a place in your planning alongside price, buyer and structure. You can influence it, and it often deserves far more attention than it gets.

What “Completion” Really Means

Many owners assume a sale happens when they shake hands, agree the price, or sign the paperwork. For tax purposes, it isn’t always that simple.

The structure of the deal and the wording of the contracts can affect the date the tax rules treat as the sale date. In broad terms, a typical sale has three moments that people often confuse:

• Heads of terms: the early understanding between you and the buyer, which usually has no legal force.
• Exchange of contracts: the point where both parties commit to the deal.
• Completion: the point where ownership transfers and the buyer makes the main payment.

In some transactions, these happen on the same day. In many, they don’t. Weeks or even months can separate exchange and completion, particularly when conditions need satisfying first. Regulatory approvals, third-party consents and financing arrangements all cause this.

The type of contract and its conditions can decide which of these dates counts for tax. A sale you agree before a rate change but complete after it may not receive the treatment you expect.

This is why paperwork detail matters. A delay in finalising documents, a condition that takes longer than planned, or a minor change to the contract can shift the date and change the numbers.

Delayed and Staged Payments: Where It Gets Complicated

Not every sale involves one lump sum on one day. Plenty of buyers structure deals so the seller receives money over time. Common examples include:

• Deferred consideration: the buyer pays part of the price at a later date.
• Earn-outs: part of the price depends on how the business performs after the sale.
• Instalments: the buyer splits the price into scheduled payments.
• Retentions or escrow arrangements: the buyer holds back part of the price until the seller satisfies certain conditions.

These structures can make a deal more attractive to a buyer. Sometimes they offer the only way to bridge a gap between what a seller wants and what a buyer will pay upfront.

They also raise important tax questions. How does each part of the payment count for tax? Do you owe the tax on completion, or as each payment arrives? What happens if you owe tax on money you haven’t received yet, or if an earn-out pays less than you expected?

The answers depend on the detail of the arrangement. Two deals with the same total price can produce quite different tax outcomes, depending on how you structure the payments and when they fall due. If rates or reliefs change between completion and a later payment, that adds another layer.

None of this means you should avoid flexible deal structures. It simply means you should design them with tax in mind from the start, rather than discover the consequences afterwards.

Why an Online Calculator Won’t Cut It

When owners first start thinking about tax on a sale, many turn to an online calculator. It’s an understandable instinct. You enter a sale price and a purchase cost, and a number appears.

The trouble is that a calculator only works with the information you give it, and it usually assumes a simple scenario. It doesn’t know:

• Whether your sale qualifies for any available reliefs, and whether you’ll still meet the conditions on the date of sale.
• How you’ve structured your deal, and which payments land in which tax year.
• Whether the date you’re planning around really counts as the sale date.
• How your personal circumstances, such as other income, other gains or wider financial plans, affect the outcome.
• What’s changing in the rules, and when.

A calculator gives you a number. It can’t give you judgement, and it can’t tell you what you haven’t thought to ask. When the potential difference runs to tens of thousands of pounds, a rough estimate makes a poor foundation for a decision this size.

Questions Worth Asking Well Before You Sign

The best time to talk to an accountant comes well before you’re anywhere near signing anything. A good adviser will help you work through questions like these:

1. What date will the tax rules treat as the sale date? And does your timetable have any flexibility?
2. What tax rates and reliefs apply on that date? Do you currently meet the conditions for any reliefs, and will you still meet them at completion?
3. How will the tax rules treat any deferred or contingent payments? And when will the tax fall due?
4. Would a different structure produce a better result? For example, would a different split between upfront and later payments change the outcome?
5. Should you take any steps before the sale? Some take time to put in place, which is one more reason to start early.
6. Does your timing line up with your personal plans? Retirement, a new venture or a major purchase might all affect the answer.

You can’t answer these in the final week of a deal. Some need months to act on.

Common Mistakes to Avoid

Owners who run into avoidable tax problems on a sale often fall into the same few traps:

• Leaving tax until the end. By the time you sign heads of terms, many of your options may have narrowed.
• Focusing only on the headline price. A higher price with a worse tax outcome can leave you with less than a slightly lower price done well.
• Letting the buyer set the timetable. Buyers have their own reasons for choosing dates, and these may not suit your tax position.
• Assuming the rules will stay the same. Rates have moved in stages and further changes have followed, so last year’s advice can fall out of date.
• Overlooking the small print. A single clause about conditions, payment dates or adjustments can change the tax treatment.

Turning Timing Into Something You Control

Here’s the good news. Timing only poses a risk when you ignore it. With enough notice, it becomes a tool.

If you speak to an accountant early, you can:

• Understand how the current rules apply to your situation.
• Plan your timetable with tax in mind.
• Structure the deal in the most tax-efficient way available to you.
• Avoid last-minute surprises that cost real money.
• Make decisions calmly, rather than under pressure.

That’s the difference between managing timing and letting it happen to you.

The Bottom Line

The tax on selling a business can depend on the exact date it completes, so when you sell can matter almost as much as what you sell for. Get advice early enough to actually use that information.

How H&Hendricks Can Help

Getting the timing of a sale right, tax included, forms part of the forward planning in H&Hendricks’ Preparing for Sale service. If you’re even thinking about selling in the next few years, start the conversation now, while you still have time to make the most of it.

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Ashley Bancroft is a founding Partner of H&Hendricks. A qualified Chartered Accountant and specialises in finance, strategy and entrepreneurship, with particular focus on value creation.