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bigduckontax
bigduckontax, Accountant
Category: Tax
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I am in the process of a management buyout of a small sports

Customer Question

I am in the process of a management buyout of a small sports marketing business. The business has brought forward losses in the region of £10M. My current investor is buying out many of the assets (and related liabilities) from the business to continue to use in a new but related sports business. My question is, how do you value the brought forward losses. Surely they are an asset?
Submitted: 2 years ago.
Category: Tax
Expert:  bigduckontax replied 2 years ago.

Hello, I am Keith, one of the experts on Just Answer, and happy to help you with your question.

Well, from a taxation point of view they can be as such brought forward losses can be used to offset future profits. Say you bring forward 10K of losses then with Corporation Tax (CT) at 20% then they might be worth say 2K. Of course, if they are accepted as brought forward losses, then the business can make 10K of profits before CT rears it's ugly head.

I do not think it very helpful to go into the semantics of whether such losses are actually assets, but in reality they can be valuable, providing they can be utilised.

I do hope my answer has been of assistance to you.

bigduckontax and other Tax Specialists are ready to help you
Customer: replied 2 years ago.

Keith,

Many thanks. This is as I suspected. What I am trying to ascertain is the likely value these losses would be traded at. Is there a rule of thumb? In my negotiations with my current investor I am currently being offered 7.5 pence in the pound for them, and only once they have been used. I am pushing back on this, as how/if they are used will not be under my influence going forward. Do you have any knowledge when a business is being split like this, how parties have reached a mutually agreeable valuation? And can this be done ahead of them being exercised.

Many thanks

Antony

Expert:  bigduckontax replied 2 years ago.

Anthony, the rule of thumb on valuations is that a business is worth only what a buyer is prepared to pay for it, irrespective of the book value of the assets being acquired. You are currently being offered at a 62.5% discount. Since it will be your new business which uses them how can the vendor know whether they are being utisised or not? It is an Alice in Wonderland scenario and I am not surprised that you are not content with the suggestion. Normally businesses are split on a straight sale basis without such a palarver. Perhaps it is time you employed a trusted, local, knowledgeable intermediary in this matter or perhaps consider selling to another organisation altogether.

Thank you for your support.

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