Do I Really Need an Assessment?

Business owners and advisors often ask whether an appraisal is important Actually necessary, or whether a reasonable estimate would be sufficient.

Below, we answer the most common questions we hear.

Do I legally need an appraisal for tax purposes?

In many situations, Yes.

HMRC expects transactions involving shares or businesses to occur in market valueespecially if:

• The parties are connected
• Tax relief is being claimed
• Shares are not quoted

A formal assessment shows reasonable care and provides evidence if HMRC subsequently reviews the position.

The exception to this is if the shares gifted qualify for carryover relief. In these circumstances HMRC will accept that an assessment is not necessary as the benefit remains.

Isn’t a valuation only necessary when selling a business?

No. This is a common misconception.

A Valuation of shares for taxes often required when:

In fact, a lot of valuations are being done previous year any sales occur.

Can’t my accountant estimate the value?

Accountants are often very capable of checking values, however HMRC expects valuations to be prepared using appropriate valuation methodologysupported by evidence and judgment.

If taxes are involved, unsupported estimates can:

• Increases the risk of HMRC challenges
• Postpone transactions
• Puts advisors and directors in a difficult position

A formal assessment helps protect everyone involved.

Do all assessments have to be complicated (and expensive)?

A

NO.

That assessment purposes and it complexity of the situation must determine the approach. A husband-and-wife trading company with fixed profits requires a very different level of work than a group structure with growth shares or unconnected shareholders.

At ETC Tax, we focus on proportional assessmentrobust enough to stand up to scrutiny, without unnecessary complications.

When should I get an assessment, before or after something happens?

Almost always before.

Assessment prepared:

• Post transaction
• During HMRC’s investigation
• Under time pressure

It’s more difficult, more expensive, and harder to maintain.

Early advice allows problems to be identified and addressed while options are still open.

What happens if HMRC challenges the assessment?

HMRC can:

• Ask for how-to support
• Question assumptions
• Refer the assessment to the Stock and Asset Valuation (SAV) team.

Well prepared assessment:

• Demonstrate reasonable concern
• Explain the assessment clearly
• Reduce the scope and duration of questions
• This will usually prevent HMRC from imposing a fine, even if the assessment is increased following an HMRC investigation

How do I know what level of assessment I need?

It depends on:

• Why assessment is necessary
• Is the company engaged in trading or investment?
• Ownership structure and sharing rights
• Possible HMRC oversight

A brief conversation about scoping is usually enough to confirm this.

The next step

If you have any questions regarding valuation for your trading company or investment company, please contact us at enquiries@etctax.co.uk.