Share Valuation Fiscal Forum - Minutes of meeting on 29 January 2002
Contents
Apologies read.
Any queries on pre-transaction valuations to be referred to Bob Cartwright.
The SV manual will be on the internet soon, technical problems to be
overcome.
3. Proposed legislative changes,substantial shareholdings and intellectual property
New tax regime for intangible assets to be revealed in the Budget.
Deferral/exemption for companies disposing of substantial shareholdings.
The above is expected to reduce valuations in these area. More targeting
of personal CGT on unquoted share disposals by HMIT may redress this.
Agreement working well, used selectively, so far the opinions received
have supported SV's views. Helpful tool in advancing some awkward valuations.
Future review will hopefully lead to forming of best practice for the
experts.
5. Share Schemes - Current Issues
Number of EMI valuations received up 27% this year.
SV will look at Pre-Transaction Valuation requests from companies
and accept the value if it is acceptable. SV will not get into negotiation
or tax planning.
Valuations received are down, though share options are up, average
case settlement times down as are three year-old cases.
Risk assessment is helping to identify the cases worth negotiation
which assists in settling some matters quickly.
7. Better Quality Service Review
This will cover the whole of the IR. The BQS team are canvassing views from customers.
This was set for Tuesday 23 July 2002.
Details of Band B changes outlined.
Query whether the share option agreement window of 30 days could be
lengthened.
Involvement of SV in cases where HMIT were seeking penalties where
values had substantially altered.
| Representative | Company/Organisation |
|
Steve Lygo |
Parmentier Arthur Services Ltd |
|
Diane Elliott |
Arthur Andersen |
|
John Cooper |
KPMG, London |
|
Martin Drummond |
KPMG, London |
|
Amanda Allen |
KPMG, Birmingham |
| Kevin Paterson | KPMG, Birmingham |
|
Angela Belsten |
Ernst & Young |
| Alan Wallis | Ernst & Young |
|
Bruce Sutherland |
Bruce Sutherland & Co |
|
David Haigh |
Brand Finance |
|
Andrew Caldwell |
BDO Stoy Hayward, London |
|
Wendy Hallam |
BDO Stoy Hayward, London |
|
Errol Danziger |
Danziger Plc |
| Jenny Nelder | Institute of Directors |
| Tony Hindley | Valuation Consulting Ltd |
|
Tim Jameson |
Chiltern Valuation Services |
|
John Harrison |
PricewaterhouseCoopers, London |
|
Brian Edwards |
PricewaterhouseCoopers, Birmingham |
|
Colin Patterson |
RM2 Partnership |
| Lee Whotton | Deloitte & Touche, Nottingham |
| Mahesh Varia | Travers Smith Braithwaite |
| David Jacobs | Grant Thornton |
| Angela Hennessey | Christopher Glover & Co |
|
Colin Gibson |
Shares Valuation |
|
Fred Cook |
Shares Valuation |
|
Steve Gridley |
Shares Valuation |
|
Mike Mather |
Shares Valuation |
| Jon Rowles | Shares Valuation |
| Mark Evans | Parmentier Arthur Services Ltd, St Ives |
|
Simon Jennings |
Institute of Chartered Accountants in England & Wales |
| Keith Eamer | BDO Stoy Hayward, London. |
|
Ian Logan |
PricewaterhouseCoopers, Birmingham |
|
David Perrin |
Chartered Institute of Taxation |
|
Mike Fowler |
Shares Valuation |
|
Reg Malkin |
Shares Valuation |
The meeting was held at the Chartered Institute of Taxation, 12 Upper Belgrave Street, London and was chaired jointly by Colin Gibson of Shares Valuation (SV) and John Harrison of PricewaterhouseCoopers.
Colin Gibson opened the meeting at 10.30am and the apologies were read.
2. Minutes of the last meeting and matters arising
John Harrison asked whether SV staff were aware of the procedure for dealing with pre-transaction requests as it was his experience that some staff misunderstood the procedures. Fred Cook said that the procedures were known and said that these matters were handled by Information Support. If any problems were experienced, Fred recommended that Bob Cartwright [Steve Gamble from April] be contacted in the first instance.
Further to the AOB of the last forum, Colin Gibson mentioned the matter of his becoming involved in the valuation of other assets, in particular co-owned chattels. He said this matter was still under review and matters were proceeding more slowly than he would like. There was a detailed brief with the IR Solicitor and it was hoped to agree basic principles or at least to clarify the IR position shortly.
It was asked whether the SV Manual was yet available on the Internet. Fred Cook explained that the matter was still ongoing and that there were technical reasons for the delay. The outstanding chapter on Risk Assessment was now complete. That left one remaining chapter on CGT procedures to be completed. Fred confirmed the Schedule E chapter had been done but like the rest remains to be put on the Internet. Colin Gibson stressed that it was merely a question of resources. There were no secrets.
3. Proposed legislative changes and effect on workloads
Colin Gibson said that it was unusual to be discussing proposed legislation prior to its being enacted but this reflected the new approach to open government and consultation. The consultative documents have been issued, the deadline for comments is the end of January. The documents set out the reasoning; partly it is due to the ongoing drive to simplify Corporation Tax, partly there is a strong drive to encourage enterprise via the tax system. It is currently perceived that rules on shareholdings may discourage company re-organisation and that tax issues adversely affect commercial decisions. There were two areas of interest to valuers and the consultation documents, which set out the detail, may be found on the IR Internet site currently under 'Live Consultations':
Intellectual Property
Fred Cook said that the full details would be revealed in the Budget. However, the proposal is for a comprehensive new tax regime for intangible assets. It is designed to
a) provide relief for the cost of acquiring the asset,
b) give the relief on a consistent basis following the amortisation rate
used by companies,
c) treat sales of the asset consistently with profits taxed as income
but with a roll-over provision for re-investment in new intangibles, and
d) provide transitional arrangements that preserve expectations for companies'
existing intangibles.
Fred outlined the main proposals with particular reference to the effects on CGT. He said that it would probably mean less valuation work over a period of time, but that the transitional arrangements would leave occasions for open market valuations for some time to come. Colin Gibson mentioned that Paul Simpson who has led on IP valuation in SV was leaving but this was not as a result of the above, Alan Hughes was replacing him.
Substantial Shareholdings
Steve Gridley gave a brief summary of the draft legislation on the proposed exemption for substantial shareholdings.
It was expected that there would be a reduction in SV staff over time as the exemption bites.
SV Workload
Amanda Allen asked about the effect on the work state. Colin Gibson said it was hard to quantify; such valuations formed around 10% of the total number of valuations dealt with in SV but these were complex cases and he anticipated a 20% plus reduction in work at Band B level. However, it was hoped that there would be an upturn in referrals of smaller cases from the Network. Personal return work was being refocused and an element of central direction was being introduced for 2002/03 and later years. In effect this means targets for the take up of work which will include CGT. Network offices will focus on areas where tax is most at risk and SV will be working closely with them on cases involving valuation. The Network would also be establishing teams to deal with Complex Personal Return cases; seven units across the country would deal with this work.
The general consensus was that companies were holding back until the
legislation was passed, there was also a shift in emphasis of work, more
employee benefit work and less corporate restructuring. It was expected
that there would be a pick-up in work after the Budget.
4. SV Framework Agreement For Outside Independant Experts
Fred Cook recalled that he had described the establishment of the Agreement at the last meeting. Since its instigation in July 2001 SV has made seven requests for independent advice, another is imminent and it would be no surprise if others followed in the near future. The work has been fairly evenly spread amongst the experts but the cases are not just allocated by rota.
To date the opinions received from the experts have been broadly supportive of SV's view in the particular cases concerned. Such confirmation is a helpful negotiating tool and has helped to counteract intransigence as the taxpayer realises that SV intends to maintain its valuation given the backing of an independent view. The majority of referrals to date have been in respect of medium ranking valuations but opinions have been sought about a major drinks company and a well-known trademark.
None have yet gone to a contentious hearing but one is being litigated and a directions hearing before the Special Commissioners is expected shortly in another.
Fred stressed that the advice that SV is seeking should not be a "Rolls Royce" report suitable for presentation as a proof of evidence but a considered opinion set out in a relatively brief report. Similarly, reports should not address the tactics on any case; the IR solicitor is concerned to ensure that the experts maintain their independence and neutrality on any case on which they are involved in case they are called upon to act as an independent witness at a later stage. Fred felt that a future meeting of the experts to discuss the working of the panel and to exchange views and best practice might be useful.
John Harrison asked about the fees charged. Fred Cook said that the fees paid were according to the quotations entered in the original tenders.
John Cooper asked whether the experts could advertise their role and
view their position as an endorsement by SV of their valuation prowess.
He believed that one was doing this. Fred Cook said that the contracts
are those approved and used across the IR. Panel members can disclose
that they are members but it should not be viewed as an endorsement from
SV that they are better than anyone who was not selected. Quality was
a prime driver in the selection of the Panel members but the fees entered
in the tender had to be taken into account too.
5. Share Schemes - Current Issues
Steve Gridley mentioned that there was a Private Members Bill in Parliament at the moment seeking to extend the scope of share incentive plans to organisations such as John Lewis and Ove Arup.
Steve said that Fred Cook had mentioned last time SV's Post-Transaction Valuation Check service in respect of Schedule E matters. He queried whether the system should be more formalised to encourage people to use it. That would mean forms needing to be drafted and instructions issued and the cost could only be justified if it was going to be used. Bruce Sutherland felt that if it were known about, it would be used.
Jenny Nelder asked about the level of Schedule E work. Steve said that he thought that SV carry out around 1,500 valuations a year, typically in connection with the exercise of unapproved options. Jenny asked if we knew how much was not referred to SV. Steve said we did not know. He added that we would look at providing a formal Schedule E PTVC service in consultation with ESSU.
Steve Gridley added that SV carry out a small number of Pre-Transaction Valuation Checks where shares were being issued to large numbers of employees. The policy for dealing with this had been set out at the last meeting. SV will not to be drawn into negotiating values before such transactions take place. SV will simply indicate whether or not the price suggested was acceptable.
Alan Wallis said that it was not clear what size of company SV would consider. How many employees did it need? It seems to vary between one hundred and several hundreds, would fifty be acceptable? This uncertainty can make it difficult to advise clients. Fred Cook said that he felt the guidelines were clear enough: a definite number for a cut-off point would present hard cases. The notes presented at the last meeting indicated that SV 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. The note gave an example where 75 employees would not be regarded as an insufficient number. Colin Gibson felt that it was a matter of common sense, SV are not seeking to be obstructive but some people push the margin. John Harrison felt that the flexible approach was better. Colin Gibson said that SV will undertake to help on cases which fall within the guidelines wherever possible.
John Cooper asked about the level of EMI work. Steve Gridley reported
that they were very popular, 1,800 so far this year, a 27% increase. John
went on to praise SV for their turnaround times in dealing with these
schemes, especially bearing in mind the continuing restrictions on resources
and pressure on staff.
Colin Gibson reported that new valuations are at a lower level than in the past, around 1,200 down on last year. IHT valuations are at the same level, Post-Transaction Valuation Checks are down, Share Schemes are up by 27%. Valuations settled are running at a high level, partly due to the increasing proportion of option valuations, partly due to smarter working to get rid of old cases. 85% of valuations were settled within twelve months, average settlement time is 6.5 months and valuations over three years old are down to 269 from 346 last year.
Post targets are being exceeded. The Customer Survey showed 85% of respondents content with turnaround times; people appreciate the complexity and the consensus seems to be that in such cases accuracy and a fully considered response is more important than speed.
A new quality measure shows 94.6% is of work is dealt with to a level of satisfactory or better. It looks worse than the previous 100% but the old system was weak; the new system is better at identifying areas for improvement.
Risk assessment is working in helping to identify the worthwhile cases and this assists both sides. Case settlement time is down by a month. Colin Gibson praised staff for their efforts. There will need to be further improvement if the increased level of work from the Network materialises. They are used to quicker settlements and SV will be taking a more proactive approach to keep cases moving.
Staffing levels are down 12% on a year ago and recruitment is expected
to be limited.
7. Better Quality Service Review
The BQSR is being carried out across the whole IR. Mike Mather was canvassing comments to see what improvements to service might be made. Comments made were:
- Why does SV not have external e-mail? Bulky documents can be forwarded
with greater ease.
- Can SV use less paper and use the phone more for simple matters or
to clarify basic points?
- Is SV more inclined to argue for a high tax settlement under duress
from LBO Inspectors?
- The District Valuer can often hold up matters after everything else
is settled.
- Could there be some form of arbitration panel for contentious matters
that stops short of the Commissioners?
- More up-to-date details available to practitioners of the individuals in SV responsible for various topics.
Positive comments included:
- SV were flexible and helpful in arranging meetings at short notice
and willing to travel.
- Empowering staff to settle matters and take decisions helped in case
settlement.
- The efficiency of the telephone helpline.
- Efficient response times and the work put in. The level of case closures
is evidence of that.
- Generally good quality and consistency.
John Harrison stressed the good relationship that most practitioners
have with SV and faults are minor compared to the good points, a view
that Mike was happy to take with him.
This was set for Tuesday 23 July 2002 at 10.30am..
Colin Gibson detailed some Band B changes; there would be consequential moves but not all moves will be replaced. From April Bob Cartwright will move to the Appeals Team and Steve Gamble will head Information Support and Training.
Andrew Caldwell asked about a possible extension of the share option agreement window from thirty to sixty days. Fred Cook said that the question had been considered. The general view was that thirty days was workable but SV will be flexible. Tony Hindley wondered whether six weeks would be an acceptable compromise. Steve Gridley did not see the matter as a problem provided employers had the scheme ready when they sought a value.
Secondly, Andrew asked regarding Self-Assessment and the imposition of penalties. He believed that it had been said in the past that SV was the arbiter as to whether penalties were appropriate in any case of negligence involving valuations. Steve Gridley said that was not so; HMIT had overall responsibility for cases and they had the final say. But they would normally consult SV about a penalty arising from a valuation matter. A value change of itself was not a negligent act; each case depended on its facts.
There being no other business, the meeting ended at 12.40pm.
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