Deferred Consideration

Deferred consideration

The payments in instalments are usually treated under deferred consideration provisions (CG14850P). The information below is a summary of different contractual deferments. You will need to examine the specific contract terms to determine the correct treatment.

The tax treatment depends on whether the consideration is ascertainable consideration and unascertainable consideration.

Deferred consideration: ascertainable consideration – refers to a portion of the purchase price that is not paid upfront at the closing of the deal. Instead, it is postponed to a later date, usually contingent on the fulfilment of certain conditions or milestones. This mechanism allows the buyer to mitigate risk by ensuring that the seller delivers on specific promises or that the business continues to perform as expected post-acquisition. The deferred payment may be linked to financial targets, strategic goals, or other predefined metrics. This approach provides the buyer with a degree of protection, as they only pay the full purchase price if the seller meets the agreed-upon criteria. The amount of that future payment is usually known or can be accurately calculated at the date of disposal.

Tax treatment – HMRC expects you to make a reasonable provision on what you anticipate receiving.

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