A tax valuation will work to one of several definitions of value, the parameters for which should be clearly articulated.

The subject asset must be clearly identified and for minority shareholdings, share rights must be evaluated. Valuation is an art, not a science. The valuation should tell a story, which communicates the relevant fact pattern. An appropriate methodology (or methodologies) must be selected, the inputs for which must be comprehensively supported.

There is no set framework for the frequency with which valuations should be carried out. Changes in both the company and the market can have material effects on the valuation. You should consult with your valuer on the implications of a date change on your valuation.

Valuation is complex. Expect the process to take several weeks.

Valuation is a complex process, likely to take several weeks. Quality is key. The cost of a valuation is commensurate with this.

Tax authorities can examine valuation positions for several years after the event. They are also a key focus for due diligence. Whilst there is normally no requirement to perform a tax valuation, it is important to have a comprehensive contemporaneous record of the position adopted.

You would receive an information request list on instruction, which would include financial information, governing documentation and further context as to why a valuation is required, in addition to several touchpoints with your valuer.

It is critical that a tax valuation is prepared to the correct definition of value, which may vary between jurisdictions. For example, an intangibles valuation prepared for US tax purposes could look quite different to that prepared for UK tax purposes.

This definition of fair value for accounting purposes is similar to that for Market Value, which, on the face of it, would suggest that valuations of the same assets prepared for tax and accounting purposes ought to be the same or similar. However, valuations prepared within the Market Value framework will often be unsuitable for accounting purposes.

For example, the share-based payment standards have numerous prescriptive requirements and associated guidance that fundamentally distinguish the “fair value” of share options and geared securities for accounting purposes from their Market Value counterparts.

Growth shares deliver a return to the extent that a predetermined value hurdle is exceeded.

They can be valuable because they are capable of delivering a significant return, in the right circumstances.

Aside from valuations in connection with approved share schemes and Post Transaction Valuation Checks for CGT purposes, valuations cannot normally be agreed with HMRC, unless HMRC makes a valuation the subject of an enquiry.

HMRC and several other tax authorities expect growth shares to be valued using an exit-based methodology, where their potential returns are used as a starting point. The information standards are interpreted differently by HMRC for growth shares. For example, HMRC will normally require financial forecasts to be reflected, although the relevant case law does not necessarily support that position.

A discount is often reflected in the valuation of minority shareholdings, to reflect their lack of marketability and control. Depending on the fact pattern, the right level of discount in any given valuation could fall within a very wide range.

The approach to the valuation exercise will be driven by the definition of value. Most definitions of value do not reflect personal or employment-specific restrictions, such as vesting or leaver conditions. The Money’s Worth of shares will reflect these restrictions, where they can have a very significant impact on value.

HMRC valuation agreements for approved share schemes are generally made strictly without prejudice to other valuations of shares in the same company that may be required.

The MoU is not a valuation template and should not be followed unless the conditions are exactly met. Where the conditions are not met e.g. if the shares are not issued on the transaction, the unrestricted market value of employment-related securities can be far in excess of the price paid for them, depending on the terms of the transaction.

Differential consideration arises when shareholders receive consideration by way of different asset classes or differing amounts of consideration on a transaction. There can be significant tax implications.

HMRC adopts a five stage framework for each valuation of intangible assets. See here for further details of the framework.

Following a transaction, a Purchase Price Allocation is performed to allocate the purchase price across different asset classes. Your auditors will advise you if you need one.

There may be exit charges and there may be the possibility of claiming tax relief on certain of the assets. A full transactional analysis will need to be undertaken, with a clear articulation of the assets that are the subject of the transfer. This will enable the valuer to consider the parameters for any required valuation.

There can be significant differences between the Market Value of an asset that is sold as part of business reorganisation and the Arm’s Length Provision in respect of that business reorganisation.

See here for details of the key differences.