Financial due diligence (FDD) is vital in any business acquisition and should never be overlooked. While specialist tax due diligence is a distinct component of FDD which shouldn’t be underestimated.    

What is tax due diligence?

The process of tax due diligence will see an expert examine the historical tax compliance and live tax exposures of a business, identifying and quantifying possible tax exposures, to deliver tailored and commercially-focused advice.  In the context of a commercial transaction, highlighting risks are nothing without solutions, so tax due diligence becomes an integrated part of the wider transaction advisory team.

Tax due diligence can be broad in scope and cover a wider variety of things.  Three examples of focus may include:

Previous company reorganisations

Reorganisations of a business can occur for a number of reasons, such as management buyouts, mergers, or to address financial difficulties. Successful reorganisations can facilitate an increase in profits and/or improve operational efficiencies.

However, when reorganisation is done badly, businesses can be exposed to potential tax risks. An in-depth due diligence report of a company’s reorganisation activities will help to identify any potential exposure for the buyer if they acquire the company.

VAT compliance

One regular focus of a tax due diligence is VAT, in part down to the relative level of compliance over a defined period. Getting VAT wrong can lead to many issues, including exposures to underlying VAT and often penalties.

Share schemes

Employee share schemes have grown in popularity in recent years as a tax-efficient way to incentivise employees.  However they can lead to considerable tax exposure, for both the employing company and employees, where implemented incorrectly.

Get in touch

Magma has significant experience in providing commercially-astute tax due diligence support across business transactions, either in isolation, or alongside our Corporate Finance team.   Get in touch on 01788 539000 or 0116 261 0061 to find out more.


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