Taxation logo taxation mission text

Since 1927 the leading authority on tax law, practice and administration

Estimated earn-out

31 May 2011
Issue: 4306 / Categories: Forum & Feedback , Capital Gains
A client sold his business in 2009/10, with part of the consideration being an earn-out right to 30% of future profits over the following five years

Our client made a disposal of his business during the 2009/10 tax year which included an earn-out element of 30% of future profits over the next five years all to be paid in September 2014.

We have treated that in line with the Marren v Ingles case and estimated the value of the earn-out right. We recognise that tax will have to be paid on any excess pay-out over the estimated value.

At current rates that tax will be charged at 28% whereas the value of the earn-out was taxed at only 10% because of the availability of entrepreneurs’ relief.

If HMRC subsequently feel that the earn-out was under-valued then presumably they can challenge this under an enquiry or (possibly) via a discovery assessment.

However what happens if they think that we have over-valued it?...

If you or your firm subscribes to, please click the login box below:

If you are not a subscriber but are a registered user or have a free trial, please enter your details in the following boxes:

Alternatively, you can register free of charge to read a limited amount of subscriber content per month.
Once you have registered, you will receive an email directing you back to read this item in full.

Please reach out to customer services at +44 (0) 330 161 1234 or '' for further assistance.

back to top icon