HMRC Shares Valuation Fiscal Forum 11 July 2006
| Representative | Company / Organisation |
|---|---|
| Colin Gibson | Shares Valuation (SV) |
| Fred Cook | Shares Valuation |
| Mike Fowler | Shares Valuation |
| Steve Gridley | Shares Valuation |
| John Hewing | Shares Valuation |
| David Richardson | SPSS |
| Mark Evans | Evans Appraisal Ltd, London |
| John Blamey | KPMG, London |
| Mandy Neal | KPMG, London |
| Bruce Sutherland | Bruce Sutherland & Co (on behalf of Institute of Directors) |
| Angela Belsten | Ernst & Young, London |
| Andrew Caldwell | BDO Stoy Hayward, London |
| Wendy Hallam | BDO Stoy Hayward, London |
| Simon Jennings | Rawlinson Hunter (on behalf of ICAEW) |
| Angela Hennessey | A Hennessey, London |
| Tony Hindley | Valuation Consulting Ltd, London |
| Ian Murphie | The RM2 Partnership, New Malden |
| Paul Giles | Browne Jacobson, Nottingham |
| Kirti Seth | Grant Thornton, Leicester |
| John Stevenson | Tenon Ltd, Nottingham |
| Maresh Varia | Travers Smith Braithwaite, London |
| Errol Danziger | Danziger plc, London |
| Diane Elliott | WJB Chiltern, London |
| Michael Weaver | American Appraisal, London |
| Travis Taylor | American Appraisal, London |
| Robin Arthur | Parmentier Arthur Tax Services |
| David Bowes | Vantis Plc (on behalf of CIOT) |
| William Franklin | Pinsent Masons, Birmingham |
| David Haigh | Brand Finance Plc, Twickenham |
| Ken Read | Deliotte & Touche, Nottingham |
| Simon Browning | Deliotte & Touche, Nottingham |
| Colin Copeland | Mazars, Bedford |
| James Palmer | Duff & Phelps Ltd, London |
| Edward Playfair | Osborne Clarke Solicitors, Bristol |
| Representative | Company / Organisation |
|---|---|
| Paul Simpson | Shares Valuation |
| Maggie Anderson | SPSS |
| Brian Edwards | PricewaterhouseCoopers, London |
| Ian Logan | PricewaterhouseCoopers, Leeds |
| Penelope Williams | Withers Worldwide (on behalf of The Law Society) |
| Stuart Drummond | Law Society of Scotland, Edinburgh |
| Ian Clark | Turcan Connell (on behalf of Law Society of Scotland) |
| Steve Lygo | Parmentier Arthur Tax Services, St. Ives, Cambs |
| John Cooper | KPMG, London |
| Tim Harding | KPMG, London |
| Anne Daly | KPMG, London |
| Amanda Allen | KPMG, Birmingham |
| Alan Wallis | Ernst & Young, London |
| Jenny Nelder | Bruce Sutherland & Co (on behalf of Institute of Directors) |
| Ewan Wallace | W D Johnston & Carmichael (on behalf of ICAS) |
| Keith Eamer | BDO Stoy Hayward, London |
| Sue Tilstone | Deloitte & Touche, Nottingham |
| Mervyn Woods | Confederation of British Industries, London |
| Ian Brewer | Valuation Consulting Ltd, London |
| Colin Paterson | The RM2 Partnership, New Malden |
| 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 |
| Vicki Carr | Osborne Clarke Solicitors |
| Lindsay Pentelow | Mazars, Bedford |
| Stuart Davies | Davies Consultancy |
Executive Summary
1. Introductions and Apologies
- Apologies read
2. Minutes of Last Meeting
- Minutes agreed
- Chattels forum to be set up
3. Changes in HMRC and CAR
- SV now part of Charities, Assets and Residence (CAR) – director Mary Hay
- Colin Gibson now head of SV and ESSU
- HMRC signed up to 5 year budget that constricts by 5% per annum
4. SV Performance & Workloads
5. SV Customer Survey
6. Shinebond Ltd v Carrol (HMIT) SpC522
7. Pension Scheme Valuations
8. Employment Income PTVC’s
9. Any Other Business
10. Date of Next Meeting & Venue
- This was provisionally booked for January 2007 with the venue to be confirmed
- HMRC Shares Valuation Fiscal Forum 11th July 2006
Minutes
The meeting was held at the boardroom of 1 Horse Guards Road, London and was chaired by Colin Gibson and Mark Evans.
1. Introductions and Apologies
2. Minutes of the Last Meeting
- Minutes agreed.
- Mike Fowler stated that any matters relating to chattels valuation would now be dealt at the new chattels forum. He added that the time and place of the first meeting was yet to be arranged.
3. Changes in HMRC and CAR
- Colin Gibson explained that SV now comes under the Charities, Assets and Residence (CAR) directorate headed by Mary Hay. The directorate covers IHT, CGT, Trusts, Residency, Pensions, Savings, Employee Shares and Securities as well as SV. Colin Gibson stated that he has returned as head of SV and is now also head of ESSU.
- HMRC has signed up to a five-year budget plan. HMRC’s chairman was delighted as it gave the department security and clarity on funding and deliverables. The impact of this budget was that the Department had to deliver 5% cuts in its costs per annum for the duration of the agreement.
- SV expected no major changes in its approach in the short term but it was looking closely into the effects of such budget cuts on its service and approach. Colin Gibson stated that SV had not appointed any new staff in recent times and had not run any courses for new trainees either. SV recognised the importance of maintaining its skillbase and its customer service despite the budget cuts.
- Mark Evans asked if the figure of 5% per annum was compound or not and Colin Gibson confirmed that they were.
4. SV Performance & Workloads
- Mike Fowler stated that SV had lost 9% of its staff during the period 4/05-3/06. The impact of this was offset by a similar decrease in the number of new valuations received during that same period. However, in the first two months from 4/06 there had been a 6% increase in the number of new valuations received. This figure was expected to grow as the year progressed and could well affect SV performance targets as manpower levels will not increase during the same period.
- In 05/06 SV settled 92% of valuations within twelve months, answered 87% of all post within fifteen days and 98% of all post within forty days. However, following on from earlier comments Mike Fowler stated that these figures would be hard to match given SV’s reducing manpower levels.
- Mark Evans asked from where this 6% increase was derived and whether it was envisaged that changes to Trust legislation would have a large impact upon SV. Mike Fowler stated that the majority of the increase was seen in new CGT requests and that the changes with Trusts were not likely to have a major impact upon SV.
- Colin Gibson stated that CGT work was to be centralised into specialist units. HMRC now has a more co-ordinated approach to risk assessment.
5. SV Customer Survey
- Mike Fowler stated that in November 2005, SV issued 1,000 survey questionnaires of which 193 were returned completed. The full results were available upon HMRC’s website but to précis
- Helpline – 83% of respondents found the helpline useful and were happy with the service provided.
- Share Option Valuations – 90% of respondents were happy with the service and treatment that SV provided.
- Other Valuations - 81% of respondents were happy with the service and treatment that SV provided.
Within the 19% of respondents that were unhappy with the service provided there were three main areas of concern:
- Delay / Uncertainty – This included delay at SV and delay between submitting the papers to the relevant HMRC office to being contacted by SV. Efforts are being made to respond to the concerns expressed.
- Variation / Inconsistency – With over ninety valuers in two locations SV regrets that there will always be this perception. SV continues to try to ensure that it provides a consistent approach.
- SV’s main objective is to maximise tax revenues – Knowledge of the tax implications were important for risk assessment purposes as the valuer needs to know whether it was cost effective to pursue an individual case. However, SV’s only motivation was to agree a reasonable market value. Management can be asked to review cases if it was felt a case was being unfairly handled.
- Wendy Hallam asked how the recipients of the questionnaires were selected. Mike Fowler said that SV gathered the details of the last 1,000 correspondents prior to November 2005. Therefore, the selection process was viewed as being random.
6. Shinebond Ltd v Carrol (HMIT) SpC522
- Fred Cook gave a background report into this case that was recently decided by the Special Commissioner. The valuation was for a 100% stake of the company’s equity as at 31st March 1982.
- The company’s main activity was holding a head-lease. The shareholding in question had been purchased on 27th November 1981 and subsequently disposed of in 1988 to one of the tenants.
- Those representing the taxpayer produced a letter written in 1990 from the eventual purchaser stating that they would have been very interested in buying the headlease on 31st March 1982 at a considerable premium. This letter was produced in support of a special purchaser argument. The special purchaser argument was abandoned in the course of litigation.
- The underlying property value had been referred to the Lands Tribunal, where the value of the head-lease was determined. The case had then reverted to the Special Commissioners where the SV approach to the valuation of the shareholding was to substitute into the company balance sheet the determined value for the headlease, in place of its book value. Those representing the taxpayer attempted to argue for a much higher value using an earnings based approach that they had devised.
- The Special Commissioner agreed with SV’s approach to the valuation but rejected the claim that a deduction for the contingent capital gains liability was appropriate given the impact of FA 1988. The Special Commissioners took the view that as FA 1988 set the date for the rebasing election at 31st March 1982, the implied values for both acquisition and disposal at this date would have been the same and therefore no liability would have arisen. Unfortunately this point could not be challenged at the hearing as it was not raised neither by the taxpayer nor by the Special Commissioner.
- SV does not agree with this aspect of the Special Commissioners' decision. A valuation at 31st March 1982 cannot be made in the knowledge of future legislation. The issue was whether at 31 March 1982 a future disposal of the head-lease was likely to attract capital gains tax and HMRC had simply suggested a deduction of a proportion of the tax that would have been payable on the gain that had accrued by the valuation date. Although SV had not appealed against this particular decision, SV will continue to argue for deductions for contingent capital gains as at 31st March 1982 in suitable cases.Mark Evans asked if details of this case had been published. Fred Cook said the decision was available on the Special Commissioners' website:
7. Pension Scheme Valuations
- Mike Fowler said that, following on from comments made at the previous Fiscal Forum, there were three main topics of interest:
- Basis of valuation
- Potential volume of valuation requests
- Process required to settle valuations
David Richardson as the Head of Technical within Pensions had been invited to give more background information to the changes seen from the Pension Tax Simplification measures that took effect from 6th April 2006 (A-Day)
David Richardson gave a detailed overview of the new pension regime. He confirmed that any further information could be obtained from the SPSS website.
Mike Fowler then addressed the point regarding the basis of valuation. The new pension legislation (s.278 of part 4 of FA 2004) introduces s.272 TCGA 1992 as the basis for determining market value for pension scheme purposes. When a minority holding is to be valued s.272 has long been interpreted as requiring it to be valued in isolation regardless of the number of other shares owned by the taxpayer.
For A-Day purposes, SV has been advised that the valuation will be for the holding held by the pension scheme regardless of whether the beneficial owner holds other shares outside of the scheme.
This was a change from the old informal aggregation policy that was announced in the addendum to the minutes of the 24th July 2001 Fiscal Forum, which was only possible because the old pension scheme regulations did not define the basis of valuation.
All Pre-FA 2004 valuations will continue to be dealt with under the old informal rules.
Ian Murphie asked whether the value for pension scheme purposes should be the actual market value (AMV) or unrestricted market value (UMV). Steve Gridley stated that the asset held by the scheme would need to be identified and it appeared that the AMV of the asset would be required – UMV was a concept limited to employment-related securities valuations.
Ian Murphie also asked about the value of share options for pension scheme purposes. Mike Fowler said that, again, the exact asset in question would need to be identified and valued.
David Richardson advised that as at 7th July 2006, 3962 applications for protection certificates had been received. Of these, only twelve included unquoted shares. He then gave his thoughts of circumstances where, under the new regime, a valuation may be necessary – this was not meant to be “the official HMRC list” but merely the result of a check he had undertaken for discussion today. He confirmed he would be happy to supply a copy if anyone felt it might assist them. Mike Fowler asked that given the low numbers of potential valuation cases so far, could the delegates advise as to whether they had been approached to comment on such matters for their clients
If so, how many
Robin Arthur said that following the introduction of Taper Relief in 1998 there had been little motivation for clients to put unquoted shares into such schemes and only one client had approached him on this topic. Only one other delegate confirmed that they had also been approached by one of their clients.
Mike Fowler wondered if the initial estimate of 5,000 cases over the next three years might not be reached.
8. Employment Income
As head now of both SV and ESSU Colin Gibson hoped that this would provide greater synergy upon share schemes matters but no decisions upon any processes had yet been made.
Steve Gridley said that following a request for representations on Employment Income Post Transaction Valuation Checks (EI PTVC) at the last Forum there had been very few responses. Those that had been received were keen for SV to continue with EI PTVCs. Mark Evans asked if the responses could be published with the Fiscal Forum Minutes. Steve Gridley said that would not be possible because HMRC did not have authority from the authors to do so. He would however consider providing a summary.
Steve Gridley indicated that a large number of requests for EI PTVCs had been received after the introduction of the new legislation in 2003. However, many of those requests merely sought (in effect) confirmation that no tax was due or if tax was being offered, the amounts were small.
A general discussion on the matter followed, with practitioners explaining that EI PTVCs provided certainty for their clients. It was however appreciated that SV will be required to make year on year cost savings. EI PTVCs would therefore need to be cost effective. With little tax apparently at stake, the ‘service’ might therefore be vulnerable. Mark Evans expressed the view that the availability of EI PTVCs helped provide earlier contractual certainty as between the employer and the employee.
The position with PAYE Health-checks was much the same. Mark Evans commented that he had recently discussed a PAYE Health-check with a senior member of SV. Was there a specific review of this topic being undertaken within SV
Steve Gridley confirmed that a review was not underway and that PAYE valuations are dealt with in his Valuation Group.
9. Any Other Business
David Haigh asked if SV were aware of Andrew Gower’s review of intangibles. Mike Fowler stated that Paul Simpson was doubtless aware of the review. [In fact, the review will provide an analysis of the performance of the UK IP system and there are no immediate issues for SV.]
Ian Murphie asked if it is correct that SV will not agree an EMI valuation for the £100,000 limit unless it is exceeded. Steve Gridley said that was not correct but if a request for an EMI valuation did not mention a limit valuation, SV tended not to raise the matter unless it was clear that the £100,000 figure was going to be exceeded. Many practitioners do not ask for such a valuation when the grant of options involves only a modest number of shares. SV therefore adopts a common sense approach and does not delay the correspondence by raising the question of the limit. If form Val 231 is used, practitioners can set out exactly what is required.
Ian Murphie then asked who decides what was or was not a restriction for EMI purposes.
Steve Gridley explained that SV’s function was to value shares. If there was a need to decide whether or not a particular provision was a restriction, the matter should be resolved with the SCEC.
Wendy Hallam raised a technical question with regard to charges under Chapter 3(d) Section 446X ITEPA 2003. Where shares are sold by an employee at a price determined by fair valuation provisions in the Articles, and these potentially inflated value by, for example, prescribing no discount for minority status, was it correct that there was a tax charge on the difference between the “discounted” OMV for tax purposes and the “fair value” purchase price
Steve Gridley confirmed that that was the view of the Share Schemes Team as he understood it.
Mark Evans wondered why the market value of the shares had not in fact risen to the available purchase price, as occurred immediately prior to a company sale or flotation
Steven Gridley responded that for the purpose of the S.272 TCGA 1992 market valuation required for the Chapter 3 charge, the personal position of the actual vendor was ignored.
10. Date of Next Meeting & Venue
Colin Gibson confirmed that the next meeting would take place in January 2007 with the date and venue to be arranged in due course.
