HMRC’s Shares and Assets Valuation (SAV), whose remit is the valuation of all shares and nonland assets for tax purposes, hosted popular Fiscal Forum meetings until 2018, but, for reasons of internal change and then COVID-19, business valuers have not had the opportunity to hear directly from the agency since then. That long delay ended last week when Steve Thomas (MRICS), the assistant director of HMRC’s Assets, Residence and Valuation section, held a Q&A at ICAEW’s 2021 Business Valuation Conference.
Thomas is familiar to many BVWire—UK readers. He’s a clear spokesperson for SAV and currently leads their litigation team of 70 based in Nottingham (50 to 60 of those are trained valuers who work across all the disciplines). Like all of SAV, Thomas has been working remotely since March 2020, including the ongoing work in front of virtual tribunals for hearings. SAV had hired a team of new valuers just before COVID-19, and training and CPD proceeded remotely, so those are now fully integrated.
SAV received 10,355 valuations during the 2020-21 tax cycle, slightly down from the 11,857 received in the year leading up to COVID-19. Thomas described SAV’s service levels as “commendable” during this period, since their internal reporting showed that they dealt with 97% of all correspondence regarding valuations within 40 days (and most—84%—within 15).
Half of the valuations SAV receive continues to be those for enterprise management incentives. This service allows companies to obtain assurance of market values prior to the granting of these tax-advantaged options. “EMI referrals haven’t lessened during lockdown,” Thomas told the ICAEW group. “They are very much 24/7/365. We receive them on Christmas Day, Easter Sunday, and at 2 or 3 o’clock in the morning.” They’re given priority. Still SAV extended the option period from 90 to 120 days to give more time to initiate the grants. As of now, they plan to continue this extension.
Let’s not repeat fiscal valuation mistakes: SAV are concerned about the possibility of “bad valuations driving out the good,” and he assured all the attendees that the professionals and managers at SAV are aware of the problem and wish to curtail it. “We have made mistakes, but please don’t push our valuers to repeat them,” Thomas stated firmly.
“Please, let’s have a sense check before you send a valuation into us. If you’ve got actual transactions in similar-sized holdings of the same class of share at around the same time at £100 a share … all other things being equal, don’t let your clients expect SAV to agree at a 10th or less of the actual transaction figure for EMI purposes.”
Agents have submitted valuations on this basis, Thomas recounts, and, “in a couple of cases, have got quite upset with us for not accepting their proposals.” To try to give better guidance, SAV have added illustrative samples to SVM110050 of their “Shares and Assets Valuation Manual.” Actual valuations lead the hierarchy of determining share price, so “please don’t try to hide them on page 41 in a footnote…. Please give us full details from the start.” While SAV don’t negotiate, call first to see whether what’s relevant can reduce uncertainty, Thomas stated, considering:
- Funding events;
- Discounts; and
- Effects of COVID-19 on value (including both winners and losers—and the surprise that “COVID-19 trumped Brexit,” as moderator James Palmer of Kroll/Duff & Phelps said).
One ICAEW attendee asked about valuing growth businesses where the EMI shares are currently underwater. Are those shares now worthless? Thomas said, whilst each situation is judged on its own merit, valuers must consider the risk and potential reward to the owner. A share valued at a very low price has little risk, he said, so that implies there is no potential for reward. Why would an enterprise float those shares, and why would an investor buy them, if there were no potential reward?