Shares and Assets Valuation Fiscal Forum
19 February 2008

List of attendees

Colin Gibson
Fred Cook
Mike Fowler
Jon Hewing - Shares & Assets Valuation (HMRC)
Mark Evans - Evans Appraisal Ltd, London
Kirti Seth - PricewaterhouseCoopers, Nottingham
Tim Harding - KPMG, London
Angela Belsten - Ernst & Young, London
Andrew Caldwell - BDO Stoy Hayward, London
Matthew Earp
Christy Bumby - Deloitte & Touche, Nottingham
Angela Hennessey - A Hennessey, London
Tony Hindley - Valuation Consulting Ltd, London
Ken Read - Grant Thornton, Birmingham
Bruce Sutherland - Bruce Sutherland & Co (on behalf of CBI)
Jenny Nelder - Bruce Sutherland & Co (on behalf of IOD)
Ian Young - ICAEW, London
Stuart Davis - Davis Consultancy
Mahesh Varia - Travers Smith Braithwaite, London
Errol Danziger - Danziger plc, London
Diane Elliott - Chiltern Tax Support for Professionals Ltd, London
Michael Weaver - American Appraisal, London
James Palmer - Duff & Phelps Ltd, London
Natalie Smith - Osborne Clarke, Bristol
David Bowes - Vantis plc (on behalf of CIOT)
William Franklin - Pinsent Masons
Graeme Nuttall - Field Fisher Waterhouse LLP, London

List of apologies

Anne Daly
John Blamey - KPMG, London
Brian Edwards - PricewaterhouseCoopers, London
Colin Paterson - The RM2 Partnership, New Malden
David Haigh - Brand Finance plc, Twickenham
Ewan Wallace - W D Johnston & Carmichael (on behalf of ICAS)
Ian Brewer - Valuation Consulting Ltd, London
Ian Clark - Turcan Connell
Ian Logan - PricewaterhouseCoopers, Leeds
James Ness - Law Society of Scotland, Edinburgh
John Neighbour - Hardcastle Burton, Hoddesdon
Jonathan Brownson - Royce Peeling Green, Manchester
Keith Eamer - BDO Stoy Hayward, London
Kiki Stannard - Smith & Williamson Ltd, London
Lindsay Pentelow - Mazars, Bedford
Marc Abrams - Tenon Ltd, Nottingham
Mervyn Woods - Confederation of British Industries, London
Patrick Burns - Employee Ownership Association, London
Paul Giles - Browne Jacobson, Nottingham
Penelope Williams - Withers Worldwide (on behalf of The Law Society)
Richard Fleet - Sir Robert McAlpine Ltd, Hemel Hempstead
Simon Jennings - Rawlinson Hunter (on behalf of ICAEW)
Steve Lygo - Parmentier Arthur Tax Services Ltd, St. Ives
Sue Tilstone - Deloitte & Touche, Nottingham

Minutes

1. Introduction

Colin Gibson noted the apologies from absentees and made introductions to delegates attending the Forum for the first time.

2. Minutes

Minutes from January 2007 contained no action points.

3. SAV performance and workloads

Mike Fowler said that HMRC was improving its processes for dealing with capital gains tax. There is more specialisation and an emphasis on risk assessment before referral to SAV. SAV are working closely with referring offices in an effort to streamline processes and reduce settlement times. Against this background SAV expect to receive about 22,500 referrals in 2007-08 compared to about 25,000 in 2006-07. Mark Evans asked how a centralised CG network would be beneficial. Colin Gibson replied that a greater concentration of CG expertise should result in better identification of valuation issues, better risk assessment and therefore fewer but better quality referrals to SAV.

Mike Fowler advised that SAV have moved to recording median settlement times rather than average settlement times as this is felt to provide a more meaningful customer service measure. Thus far the median ‘closed on risk assessment’ time is one month and the median ‘settled on negotiation’ time is five months. Mark Evans asked whether any comparison had been made when switching to median settlement times from average settlement times. Mike Fowler said this had not been practicable.

Excluding adherent goodwill cases, SAV currently has 245 cases over two years old, down from 275 at the same time last year. 93 per cent of cases are closed within 12 months and a strike rate of 78 per cent is being achieved.

SAV Edinburgh will close on 25 April 2008 which coincides with the retirement of long standing valuers Tom Lish and Eric Naysmith. Other SAV Edinburgh staff have been found jobs within HMRC. All cases still being worked in Edinburgh will be transferred to valuers in Nottingham. Bruce Sutherland wondered whether the closure of the Edinburgh office would affect the use of Scottish lawyers. Fred Cook advised that SAV's Appeals Team in Nottingham had long since been responsible for Scottish cases land would continue to work closely with the lawyers in Edinburgh on any Scottish cases.

HMRC continues to be subject to year-on-year budget cuts and SAV is working on improving processes to minimise the impact on customer service levels.

Jennie Nelder asked about the age profile of SAV staff. Colin Gibson said that in common with the rest of HMRC the proportion of older staff was growing. But he was keen to introduce new blood and was pleased to report that as a consequence of retirements three new Grade 7s would soon be appointed and a training course was currently underway (the first for some time) with possibly another to follow.

4. Tribunal reform

Fred Cook outlined the Ministry of Justice proposals for the reform of tribunals in so far as they affect tax appeals. The changes were expected to commence in April 2009.

The Tribunals Service, with Lord Justice Carnwath as Senior President of Tribunals, has established a new business model for operational delivery of tribunal services based on multi-jurisdictional Hearing Centres; six multi-jurisdictional Administrative Support Centres; and a regional management structure.

The Tribunal structure will be based on a First-tier Tribunal and an Upper Tribunal. The First-tier Tribunal will be the first instance tribunal for most cases. The Upper Tribunal will lead on developing the law underlying administrative justice. It will take appeals from the First-tier Tribunal. It will have power to deal with judicial review work delegated by the High Court. The Upper Tribunal will also have a limited first instance jurisdiction for complex cases or issues of general application where a precedent for the lower tier may be set. Appeals from the First-tier to the Higher Tribunal will only be made with permission and normally on a point of law. Appeals from the Upper Tribunal to the Court of Appeal or Court of Session will be only on a point of law. The Lord Chancellor wants to exercise a power under the Tribunal, Courts and Enforcement Act 2007 to permit appeals from the Upper Tribunal only in cases of general importance or for other compelling reasons.

Tribunal hearing facilities will be provided throughout the United Kingdom, according to business need and the position of the parties. Flexibility is envisaged, including non-oral hearings where appropriate.

The Finance and Tax Upper Tribunal will build on the strengths of the Special Commissioners and other tax and finance jurisdictions associated with them. It will take over the appellate functions of the Chancery Division of the High Court.

Bruce Sutherland expressed the hope that the experience of particular Special Commissioners in valuation matters would still be able to be directed at cases that required their knowledge. He asked whether complex cases would be referred to the Upper Tier as a matter of course. Fred Cook replied in answer to this and other comments that it was a matter for the tribunal authorities to decide, but it must be a working assumption that most valuation cases would be heard by the First-tier Tribunal but the composition of that tribunal would reflect the complexity of the case. He was content to report concerns that valuation cases should be heard at the appropriate level.

5. Valuation of adherent goodwill

Jenny Nelder submitted the following question prior to the Fiscal Forum:

I would like to be advised of the current position with regard to HMRC’s views on adherent goodwill following the Balloon Promotions case, on which matter I understand advice has been/is being taken. I am not aware of any substantial developments since this was raised at the last SAV Fiscal Forum Meeting last January.

Mike Fowler stated that legal advice had indeed been sought and there had been subsequent debate between HMRC and RICS. As a result draft guidelines had been prepared and copies were available after the meeting. General observations or comments on the draft should be made to Paul Simpson.

Jennie Nelder asked for clarification as to how far the consultation process had been made public. Mike Fowler replied that the draft had been shared with RICS members. Diane Elliott asked about the imposition of interest and penalties on cases that have been delayed pending the Balloon Promotions case. Mike Fowler stated that he was not aware of any special arrangements with regard to interest and for penalties the usual criteria would apply.

6. Questions from William Franklin

i May we have the views of HMRC on the valuation of shares on the AIM market where the company’s shares have a very low liquidity and there is either a very wide spread or shares can only in practise be sold on a matched buyer and seller basis which may mean that a transaction can take days or weeks to complete. So for example if an option over AIM shares is exercised but the shares cannot be then be sold for a lengthy period of time how/when should the market value of the shares on exercise for Income Tax and NIC be determined?

Fred Cook replied that each case needed to be judged on its own merits. The evidence of transactions on AIM had to be evaluated and taken into account on its own merits in the same way as any transaction in shares in a company without an AIM listing. Angela Belsten noted that AIM is not a recognised exchange. Tim Harding added that even with fully listed companies there were provisions which enabled the quoted price to be challenged in certain circumstances.

Mahesh Varia mentioned valuations for PAYE purposes and asked if the closing price on the day prior to the award would be acceptable to SAV. Fred Cook confirmed that this would normally be the case and reminded delegates of the PAYE healthcheck service operated by SAV.

William Franklin asked what the default valuation position was if there were no regular trades upon AIM. Fred Cook stated the position was that one would need to undertake a valuation exercise in accordance with the normal statutory open market principles without the benefit of evidence of frequent transactions

ii Can HMRC please clarify when for a Post Transaction Valuation Check it is acceptable to approach SAV directly without first referring the matter to the appropriate Inspector?

Fred Cook said that, in line with previous announcements, the process is that PTVCs should be sent to the appropriate local office. However he recognised that HMRC structural changes were such that occasions had arisen where practitioners were not aware of the location of that office. In such circumstances, for the time being only, SAV was prepared to be approached directly where there was real uncertainty. SAV would need as much information about the taxpayer's details as possible to help them identify the responsible office and liaise accordingly.

iii Does SAV feel it has any responsibility to assist unquoted companies establish and operate internal markets and if so how does it consider it can best help. Often companies would like to agree valuations with SAV on a regular basis over a period of time (say every six months) so that employees can have certainty over the tax costs. Under what circumstances would SAV be prepared to agree to this?

Fred Cook stated that SAV does not have that responsibility and it is not resourced to provide such a service.

iv What is SAV’s opinion upon the problem of achieving fairness and consistency for taxpayers where different values apply to similar shareholdings within the same company as a result of the valuation requirement and approach being different depending on the jurisdiction of tax authority of the individuals concerned?

Fred Cook said that it was inevitable that the requirements of different tax jurisdictions could lead to variances in valuation approach and gave several examples of formulaic approaches that differed markedly from an open market valuation. In the circumstances, such differences are inevitable.

7. Structure of the Fiscal Forum

Colin Gibson reported that he and Mark Evans had been discussing the Fiscal Forum's future and noted that format had not changed significantly in his eight years as co-chair. The intended July 2007 Forum had to be cancelled due to lack of topics/issues for discussion and he suggested that if the Forum was to be as successful as it could be it was essential for members to raise agenda items.

Mark Evans commented that the approach of the Share Plan Lawyers Group (SPLG) could provide a useful reference point for the Fiscal Forum. SPLG had a structured agenda and communication was regularly undertaken via an email group where new topics were raised. Colin Gibson stressed that all discussions needed to be inclusive. Matters agreed at SPLG were communicated more widely through the Internet and similarly he was determined that people who did not attend Fiscal Forum meetings should be able easily to access views expressed by HMRC.

Mark Evans asked if delegates who also attended the SPLG had any comments. Stuart Davis distinguished the SPLG as it was concerned with a substantial and changing body of statue. That meant that there were always technical matters to discuss. This was not present in SAV matters.

Diane Elliott felt that was easier to discuss day to day issues directly with SAV as and when they arose which usually means that there is no need for further discussion at the Fiscal Forum. Tim Harding thought that it could be useful to discuss the underlying threads from Appeals cases. Fred Cook agreed, if the facts were made suitabl anonymous, it might be useful and he was willing to take this forward.

Mark Evans asked whether it would be useful for non-HMRC delegates to have pre-Fiscal Forum meetings or discussions to focus discussion at the Fiscal Forum. Ian Young agreed that for the Fiscal Forum to be successful the onus was on the non-HMRC delegates to communicate reasonable material. Mark Evans suggested that creating an email group might be worthwhile and would hopefully improve the quality of topics for discussion. He felt that SAV could perhaps respond readily to minor issues leaving more significant ones on the Fiscal Forum agenda. He didn’t feel that there was an overriding sense of discontent with the present structure of the Fiscal Forum but a sense of desire to improve its effectiveness. He suggested that the present position of holding meetings every six months should remain. Bruce Sutherland agreed that with the on-going tribunal reform and adherent goodwill issues it would be better to meet sooner rather than later. Colin Gibson agreed that the Fiscal Forum should continue to sit every January and July.

8. AOB

There being no other business Colin Gibson called an end to the Fiscal Forum at 16.30.

NB The next Fiscal Forum will be at 14.30 2 July 2008, again at 1 Horse Guards Road.