Representative |
Company / Organisation |
|---|---|
Colin Gibson |
Shares & Assets Valuation |
Steve Gridley |
Shares & Assets Valuation |
Paul Simpson |
Shares & Assets Valuation |
Jon Hewing |
Shares & Assets Valuation |
Mark Evans |
Evans Appraisal Ltd, London |
Brian Edwards |
PricewaterhouseCoopers, London |
Penelope Williams |
Withers Worldwide (on behalf of The Law Society) |
Steve Lygo |
Parmentier Arthur Services Ltd |
John Cooper |
KPMG, London |
Pavan Singh |
KPMG, London |
Angela Belsten |
Ernst & Young, London |
Jenny Nelder |
Bruce Sutherland & Co (on behalf of Institute of Directors) |
Keith Eamer |
BDO Stoy Hayward, London |
Ken Read |
Deliotte & Touche, Nottingham |
Hannah Reedy |
Deliotte & Touche, Nottingham |
Angela Hennessey |
A Hennessey, London |
Wendy Roberts |
Valuation Consulting Ltd, London |
Colin Paterson |
The RM2 Partnership, New Malden |
James Lindon |
The RM2 Partnership, New Malden |
Kirti Seth |
Grant Thornton, Leicester |
Stuart Davies |
Davis Consultancy |
Marc Abrams |
Tenon Ltd, Nottingham |
Mahesh Varia |
Travers Smith Braithwaite, London |
David Haigh |
Brand Finance plc, Twickenham |
Errol Danziger |
Danziger plc, London |
Diane Elliott |
Chiltern plc, London |
Michael Weaver |
American Appraisal, London |
Colin Copeland |
Mazars, Bedford |
Ruth Keates |
Duff & Phelps Ltd, London |
David Bowes |
Vantis plc (on behalf of CIOT) |
William Franklin |
Pinsent Masons, Birmingham |
Representative |
Company / Organisation |
|---|---|
Ian Logan |
PricewaterhouseCoopers, Leeds |
Stuart Drummond |
Law Society of Scotland, Edinburgh |
Ian Clark |
Turcan Connell (on behalf of Law Society of Scotland) |
Tim Harding |
KPMG, London |
John Blamey |
KPMG, London |
Anne Daly |
KPMG, London |
Amanda Allen |
KPMG, Birmingham |
Alan Wallis |
Ernst & Young, London |
Bruce Sutherland |
Bruce Sutherland & Co (on behalf of CBI) |
Ewan Wallace |
W D Johnston & Carmichael (on behalf of ICAS) |
Simon Jennings |
Rawlinson Hunter (on behalf of ICAEW) |
Wendy Hallam |
BDO Stoy Hayward, London |
Andrew Caldwell |
BDO Stoy Hayward, London |
Sue Tilstone |
Deloitte & Touche, Nottingham |
Mervyn Woods |
Confederation of British Industries, London |
Tony Hindley |
Valuation Consulting Ltd, London |
Ian Brewer |
Valuation Consulting Ltd, London |
Paul Giles |
Browne Jacobson, Nottingham |
John Neighbour |
Hardcastle Burton, Hoddesdon |
Jonathan Brownson |
Royce Peeling Green, Manchester |
Richard Fleet |
Sir Robert McAlpine Ltd, Hemel Hempstead |
Jim Calvert |
DoveBid Valuation Services, London |
Travis Taylor |
American Appraisal, London |
James Palmer |
Duff & Phelps Ltd, London |
Vicki Carr |
Osborne Clarke Solicitors, Bristol |
Lindsay Pentelow |
Mazars, Bedford |
The meeting was held at The Auditorium of 1 Horse Guards Road, London and was chaired by Colin Gibson and Mark Evans.
Colin Gibson said that SAV continued to receive a bad press from some quarters over matters that he thought were largely historical. He wanted to put the performance of SAV into context. He compared the current SAV figures with 2000/01 when he first came to the then SVD.
Title |
2000/01 |
2006/07 |
|---|---|---|
New valuations received |
22,500 |
25,000 |
Settlements |
21,500 |
28,500 |
% closed within 12 months |
83% |
94% |
Average time to settle |
7.6 months |
3.62 months |
No. of old cases |
(> 3 years) 422 |
(> 2 years) 309 |
Staff in post |
129 |
108 |
Colin Gibson said he thought that these figures highlighted the significant progress that SAV had made in recent years to improve their customer service and reach satisfactory agreements more efficiently.
John Cooper stated that this opinion could be more likely held within HMRC. He would be willing to defend SAV’s recent record as he was satisfied with the treatment that he receives. Mark Evans asked whether there was a problem with Senior Partners of firms who would think of the valuation requirement of an asset last in a taxation scenario and whose own experience of SAV may be out of date. John Cooper felt that this could be true as the historic perception of SAV was that it generally took two years on average to see SAV matters resolved.
Paul Simpson stated that this was not an uncommon reproach. He had attended the Large Corporates Forum to provide an outline of how the LBS and SAV worked together under a protocol to ensure valuation negotiations progress as rapidly as possible and, also, to address the perceptions about delay that some large corporates still retain despite the evidence of improved SAV performance.
Colin Paterson said that on average he sends in two or three EMI valuation requests in each week. His experience is that SAV offers a very good service that is both quick and fair. He felt very happy in his dealings with SAV.
Colin Gibson recognised this complaint and said that a review of SAV’s working relationship with the VOA was about to get under way.
Jennie Nelder asked whether there were any set guidelines that SAV followed when deciding when a referral to the VOA was required? Was there a sample process for examples where there are multiple properties involved?
Steve Gridley replied that SAV had no set procedure for VOA referrals as this was left to the judgement of the individual valuer. But there is a process that allows for a sample of properties to be valued where there were multiple properties involved.
Colin Gibson closed the discussion saying that it takes a long time to overcome old perceptions. He asked delegates that if they were unhappy with any part of SAV’s service then please let SAV know so that they could tackle the issues directly; conversely if delegates were happy with SAV’s service perhaps they could pass that on to their colleagues.
Mark Evans believed that the onus must be on businesses to get it right. Involving Government in the transaction process could lead to sloppiness in the valuation approach. Negotiators could twist the structure of the transaction to suit their own needs. Government involvement in open market transactions would not be good.
After general discussion around the point Colin Gibson said he hoped that the position would be clearer by the time of the next Fiscal Forum meeting and any changes to procedures would be shared with the Forum.
Paul Simpson advised that he did not envisage a debate about the appropriate approaches for valuing adherent goodwill and said that he was also uncertain as to how many of those present would have any direct involvement with such valuations. Nevertheless, as there were ongoing difficulties embracing both definition and valuation issues he wanted to respond to the request for an update on the current state of play.
Referring to the case known as Balloon Promotions SPC524, Paul Simpson explained that although principally about other issues some of the commentary in the decision had touched on how the HMRC CG Manual approached the wider matter of goodwill. This and follow up press comment had fuelled debate on the appropriate approach for defining and valuing adherent goodwill and, as a result, a number of negotiations had reached something of a stalemate. HMRC had given an official response to the Balloon case commentary in TB83 and this continued to be the HMRC position but given the number of cases involved and the fact that the tax implications extended beyond CG HMRC had decided to seek legal advice. Paul Simpson advised that this process was ongoing so there was little point in an academic debate about what the conclusion might be.
Jennie Nelder presumed that before any referral to litigation was made that VOA would be consulted. She also stated that it would be helpful for SAV to say when free goodwill arises.
Paul Simpson confirmed that as the valuation of adherent goodwill fell to the VOA, that office was involved in the internal consultation process. On the second point, any such guidance from SAV would need to reflect the benefit of the legal advice that was being sought.
Mark Evans felt the valuations of goodwill always appear odd. Goodwill is always only defined after an asset has been sold. Therefore, it only exists when sold but requires an acquisition value when it doesn’t exist. Paul Simpson expressed the view that when an asset is sold and a re-basing valuation is required the asset to be valued as at 31st March 1982 is defined via S35 (2) TCGA 1992.
Steve Gridley referred to paragraph 9 of the minutes of the meeting on 11th July 2006. Ian Murphie had raised a question regarding UMV & AMV valuations for EMI purposes. Steve Gridley indicted that it was now SAV’s practice to seek to agree both the UMV & AMV in all EMI valuations to avoid difficulties later. Colin Paterson said that this was sensible and helpful to his clients.
John Cooper asked if an intention to grant options in the future should be reflected in a valuation for a present grant of options, For example, if 200,000 options were going to be granted in March but it was expected that a further 700,000 options were to be granted in June, could the issued share capital be diluted by 900,000 for the March valuation?
From a practical point of view, Steve Gridley thought that the company might consider delaying the matter until June. However, if that was not possible, the March valuation should, in his view, be based on how the share capital stood at that time. Furthermore, Steve Gridley was not convinced that dilution was an issue in any event if the exercise price was to be set at market value. If options are granted at market value, how would that dilute the value of the shares? John Cooper explained that the exercise price would not be paid immediately and so unlike a share subscription, the value of the existing share capital would be diluted. Steve Gridley responded that until exercise, the option holders would not receive any return either and so dilution, in his view, was only an issue as the date of exercise approached.
Colin Gibson confirmed that a decision has been taken to move the work of SAV Edinburgh to Nottingham. There were several reasons for this including the pressure on resource costs Department wide. There was a flexible time-scale for this process but the current target date for completion was summer 2008. He did not anticipate any significant reduction in customer service as a result of this move.
“It appears that SAV are taking a new more aggressive approach to MBO’s in which they say systematically that an MBO creates a lower exit for the vendor than a trade sale and that MBO teams therefore acquire shares at less than market value by reference to the value which could be achieved on a trade sale.”
Paul Simpson explained that SAV does not have a set approach to MBO situations as, along with many commentators on the issue over the years, SAV recognised that the nature and substance of MBOs varied due to such factors as economic trends and the specific circumstances of the business that featured in the transaction. To illustrate the point Paul Simpson compared the evidence from MBOs in the recession of the early 1990’s to the current situation fed by private equity investment. On this basis it seemed logical to conclude that this was an “each case on its merits” situation and key issues were matters of judgement for the valuer involved.
Paul Simpson added that if it was felt that problems were arising in negotiations with SAV on a matter relating to a poor understanding of the valuation issues involved then a request could be made for the valuer’s team leader to review the case. Paul Simpson said that if it was felt that there was a reason to complain on non-valuation matters then a request for a review by the relevant Assistant Director could be made.
“We understand that SV take a different approach to the relative values of a restricted security than the shares schemes unit. They are still valuing shares with relatively minor restrictions as having a 10-20% differential between AMV and UMV. Is our understanding right?”
Steve Gridley stated that ESSU does not take a view on valuation issues because that is not a function of that unit. SAV does consider that restrictions, such as transfer restrictions, can depress the value of shares, but it all depends on the facts.
Colin Paterson thought that there may be some old guidance on HMRC’s website that contradicted that view. Mark Evans explained that despite some initial confusion regarding restrictions, transfer restrictions did clearly fall within section 423.
Jennie Nelder asked for clarification of the level of adjustment to a price SAV considered appropriate for transfer restrictions. Did such restrictions really affect value?
Steve Gridley repeated his view that transfer restrictions can depress value, but that each case needs to be treated on its merits. For example, in his book Principles of Share Valuation for Fiscal Purposes, Bruce Sutherland states that “it is accepted to a greater or lesser extent, depending on their severity, restrictions on transfer do have a depreciatory effect on the value of the shares subject to them”. Similarly, in Practical Share Valuation (4th edition) by Eastaway, Booth & Eamer, it is stated that “restrictions on transfer can have a depreciatory effect on the value of shares”.
Also, in Salvesen’s Trustees v IRC (1930) ATC 43, Lord Fleming stated that “All the witness were agreed that the restrictions would depreciate the value of the shares, but the only witness who put any money value on this restriction was Mr Robertson Durham who said that in his opinion it might make a difference of as much as 8s. 4d. on his value of £1. 6s. 8d. and, in my opinion, this figure is not by any means excessive.”
The discount implied by those figures is 24%, but the restrictions in Salvesen were rather severe.
Steve Gridley said that it was difficult to comment without sight of the actual papers. However, for IHT purposes “property” was defined in section 272 IHTA to include “rights and interests of any description.” A Shareholders’ Agreement would probably therefore be “property” for IHT purposes and need to be factored into a valuation in appropriate circumstances.
Steve Gridley indicated that the meaning of “property” for IHT purposes had been considered in Melville V IRC [2000] STC 628.
