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The UK tax legislation contains various provisions whereby one person may be made responsible for the tax liability of another. These are known as secondary Liabilities. This Practice Note deals mainly with the secondary tax liabilities that can arise in the context of the sale of a company. These can affect both parties to the transaction.

For example, the target company may bear secondary liabilities which arise as a result of a default in the seller’s group. The buyer will be unwilling to bear this cost and will therefore seek to protect itself by making a claim under the Tax covenant or warranties.

The target company may also incur primary liabilities which are triggered after it joins the buyer’s group, but relate back to the time when it was a member of the seller’s group. In these circumstances, members of the seller’s group may be subject to secondary tax liabilities.

The seller will require appropriate protection if the primary liability has arisen as a result of a default or other event within the buyer’s control.

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