The following Owner-Managed Businesses guidance note by Tolley provides comprehensive and up to date tax information covering:
The accurate valuation of the company’s assets and shareholdings may be required for commercial reasons, for example as a measure to evaluate the price offered for the business. It may also be required in order to establish a taxpayer’s tax filing position. For guidance on tax valuations in particular, see the Fiscal share valuations guidance note.
Valuation work is specialist, and requires knowledge of methods which are not tax based. As such it is high risk work which is generally tackled later in a tax professional’s career. Most larger firms have ‘badged’ valuation specialists, who are the only people permitted to undertake valuation work. Even in smaller firms, consideration should be given as to whether valuation work is permitted under the scope of the practice’s Professional Indemnity Insurance, and whether under general good practice the person has the relevant knowledge and experience to undertake a valuation exercise.
That said, it may be beneficial to have a valuation for tax purposes agreed with HMRC Shares and Assets Valuation (SAV). It gives clarity and certainty, and once HMRC agrees a valuation in a post-transaction valuation check, this is binding on both parties.
When undertaking a valuation exercise, well-drafted engagement terms are essential. In particular it needs to be clear that without full information provided by the client, the valuation may be incomplete. An asset’s value is essentially what a purchaser will pay and what a seller will accept and as such the process of estimating a value, possibly in absence of any actual offer, is highly subjective.
Taking all this into account, advisers without the benefit of in-house specialist knowledge should consider outsourcing valuations work to an expert.
There is a good degree of judgement involved in valuation work, including for example:
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