Shares Valuation Fiscal Forum: Valuation Checks
I understand that clarification is sought as to when agents can (and cannot) seek PTVCs. Additionally, clarification about pre-transaction valuations is requested.
1. Post Transaction Valuation Checks (PTVCs)
1.1 Capital Gains Tax
The only formal scheme for PTVCs is that introduced by Press Release 16/97 (copy attached) for capital gains tax under Self-Assessment (SA). This was later extended to Corporation Tax SA.
Since 1 April 1997 taxpayers (individuals and trustees) have been able to ask their tax office to check valuations used to compute their capital gains liability for the purpose of completing their SA returns.
Application is made on form CG34.
1.2 Corporation Tax Self Assessment (CTSA)
The PTVC service provided by the Revenue to help individuals and trustees complete their Self-Assessment tax returns was extended to companies when CTSA was introduced. Companies should similarly send form CG34 (which was amended to cover companies), with full information about the transactions to which the valuations relate, and any relevant computations, to their Inland Revenue office.
1.3 Schedule E
The policy on Employment Income PTVCs has been updated at the Share Schemes.
There is no formal scheme in respect of Schedule E benefits. However, Shares valuation does provide a PTVC service when requested so to do.
1.4 PAYE
We will provide confirmation that, in the view of Shares Valuation, a value is a "best estimate" for the purpose of operating PAYE.
Within the time-scale it is necessary to operate PAYE it is not possible to agree values on a formal basis. Such values should not be regarded as final when it comes to Schedule E liabilities.
2. Pre-transaction Valuation Checks
2.1 Share Schemes
- Approved Schemes
Subject to the comments below SV should make sure that the scheme is approved before commencing the valuation. We aim to agree values for share option schemes within four weeks from the date of receipt of the agents' letter, provided approval has been given.
| Agents will often contact us just prior to approval, so that options may be granted on approval. This is acceptable, but will likely wish to get a timetable from the agent, so that we do not get involved too early. |
|
| A typical life of an approved share option scheme is: |
|
|
|
|
|
|
|
|
|
|
|
|
|
- EMI
SV will normally provide a completed valuation and allow it to stand for 30 days to allow the company time to grant the intended options
The SV Service Statement [hyperlink to /shareschemes/svd.htm] provides further details.
- All Employee Share Plan
The SV Service Statement [hyperlink to /shareschemes/svd.htm] provides further details.
- Unapproved Schemes
- Where companies operate share option schemes for their employees, participants need to be able to establish the market value of the company's shares at the relevant dates in order to compute any taxable amounts to include on their Self-Assessment (SA) returns. Shares Valuation (SV) will consider requests for share valuations from unquoted companies in the following circumstances:
- where an unquoted company which operates an unapproved share option scheme for employees proposes to grant options which can be exercised after 10 years, SVD will consider, in advance of the grant date, the option price at which the company proposes to grant options and comment on whether the price is not less than the market value for those shares at the proposed option grant date, provided the Inland Revenue's Employee Share Schemes Unit (ESSU) has been informed of the unapproved scheme. Grants of options exercisable no more than 10 years after grant do not normally attract a tax charge at grant, so there is no need for valuations at that time;
- where options have been exercised over shares in an unquoted company, whether under an unapproved share option scheme or otherwise, and income tax liability arises on exercise under ICTA88/S135, SVD will negotiate the market value of the shares on exercise directly with the company acting on behalf of employees, subject to appropriate authority being given by the employees concerned. Negotiation can begin as soon as the exercise has taken place: there is no need to wait for the end of the tax year. This service is for the benefit, in particular, of those companies where a number of options are exercised.
Companies who wish to inform the ESSU of an unapproved share option
scheme should write to the Employee Share Schemes Unit stating:
- the name of the scheme,
- the name and registered office of the company whose shares will be used,
- the class and nominal value of the shares,
- the name and reference details of the tax offices which deal with the company's corporation tax affairs and the company's PAYE affairs,
- the name and address of the company to which any correspondence concerning the scheme should be sent (if different from above).
The ESSU can also provide copies of a draft letter of authority for
employees to sign where companies wish to negotiate the market values
of unquoted shares with SV on their behalf.
Although SV will try to deal with these valuation requests speedily,
approved schemes must take priority. It will not always be possible
to provide the same level of service for other schemes. With this in
mind approaches to SVD should be made as early as possible where a valuation
is needed for the purposes of grants, and in other cases as soon as
possible after exercise.
The information required by SV to enable a value to be negotiated includes:
- a copy of the company's accounts for the last 3 financial years ending before the date on which the value is required (unless these have already been sent to Shares Valuation Division), and any subsequent interim statement or declaration of interim dividend for the company's current financial year,
- a copy of the scheme rules,
- an estimate of the value placed on the shares with a brief explanation of how it was arrived at,
- details of any recent arm's length transactions in the shares (including the date on which each occurred, the number of shares sold and the price paid for each share), and
- the ESSU reference number for this scheme (prefixed `U`).
2.2 Schedule E
We operate informal arrangements in the case of some proposed offers to employees to subscribe to a share issue, but the number of occasions this will be undertaken is likely to be small. Our general policy remains that we do not comment on values in advance of a transaction.
We usually only contemplate such a request for a valuation where the number of employees justifies it. Certainly we are likely to refuse if the number is less than around 25 but a higher number does not mean that we shall provide a valuation. We look at the nature of the enterprise, the type of employee and what is being offered.
Example:
The opportunity to subscribe to a small number of shares by each of 75 drivers for a bus company might be a case where we are prepared to agree a value.
There are additional requirements:
- the transaction should be transparent with no side issues complicating tax liabilities or values
- that the facts underlying the valuation are clear
- that engagement in the valuation is unlikely to lead to prolonged contention and debate
F A COOK
Shares ValuationINLAND REVENUE
Press Release 16/97 of 4 February 1997
SELF ASSESSMENT: VALUATIONS FOR CAPITAL GAINS TAX UNDER SELF ASSESSMENT
The Inland Revenue are introducing a new valuation service to help taxpayers with capital gains complete their self assessment tax returns. From 1 April 1997 taxpayers liable to capital gains tax may, if they wish, submit valuations to their Tax Office for checking before they make their returns. The new service will be of great benefit to individuals and trustees who have to value assets in preparing their capital gains tax computations.
DETAILS
1. From 1 April 1997 taxpayers (individuals and trustees) will be able to ask their Tax Office to check valuations used to compute their capital gains liability for the purpose of completing their self assessment returns.
2. Full information about the transactions to which the valuations relate, together with any relevant tax computations, must be submitted to the Tax Office with the valuations. A new form (CG34), setting out the information and documents which need to be furnished, will be available from 10 March from Tax Enquiry Centres or Tax Offices.
3. Further details of the new arrangement are attached to this Press Release and will also form an annex to a revised booklet, CGT 14, entitled "Capital Gains Tax - An Introduction." Copies of the revised booklet will be available from Tax Enquiry Centres or Tax Offices, or from the Public Enquiry Room, West Wing, Somerset House, Strand, London WC2R 1LB, in April.
POST-TRANSACTION VALUATION CHECKS FOR CAPITAL GAINS TAX
Introduction
If you use any valuations to work out the gain or loss on a disposal, there is a free service from the Inland Revenue to help you complete your self assessment tax return. From 1 April 1997 you may ask your Tax Office to check valuations after you have made the disposal but before you make your return.
If we agree your valuations we will not challenge your use of those valuations in your return unless there are any important facts affecting the valuations that you have not told us about. Agreement to your valuations may not mean that we agree the gain or loss. We will not consider the other figures you have used until you make your return.
If we cannot agree your valuations we will suggest alternatives. We use specialist valuers to value some assets, mainly shares, land, goodwill and works of art. You will also be able to discuss your valuations with our valuers. But you must file your return by the filing date printed on the return even if we have not been able to agree your valuations or to suggest alternatives. You must also tell us in your return about any valuations that we have checked but been unable to agree.
If we cannot reach agreement after discussion on any valuations you use in your return you will be able to appeal to an independent tribunal.
How do you get your valuations checked?If you want us to check your valuations, ask your Tax Office or any Tax Enquiry Centre for one copy of Form CG34 for each valuation you want us to check. Return the completed form to your Tax Office together with the information and documents requested on the form. You can also attach any other information that will help us understand your valuations.
If you do not provide all of the information requested on the form your Tax Office may be unable to check your valuations. If you have difficulty getting all of this information, or you are not sure how to prepare a Capital Gains Tax computation, ask your Tax Office for help.
How long will it take?Your Tax Office, or our specialist valuers, will contact you as soon as possible after you make your application. Valuation is an exercise of judgement that can be a difficult and lengthy process, particularly if discussion is necessary. We are more likely to be able to reach agreement with you before you need to make your return if you contact us as soon as possible after you have made a disposal.
We expect that it will take a minimum of 56 days to agree your valuations or to provide you with an alternative. In more complex cases it may take longer. In a few very complex cases we may not be able to provide you with any alternative valuation before the filing date for your return.
Further Information
Further information about the operation of this scheme can be obtained from your Tax Office or from your nearest Tax Enquiry Centre.
| Home | ||||
