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Pett Franklin's reaction to HMRC's withdrawal of PTVC and Best Estimate valuations

On 1 February 2016, HMRC announced that from 31 March 2016 they would cease to accept requests to agree share valuations for PAYE Best Estimates and more generally for Income Tax under a procedure known as the Post Transaction Valuation Check (PTVC). A copy of their statement is set out below.

Statement by HMRC issued on 1 February 2016:


SAV’s valuation resources are being severely stretched and the decision has been taken to withdraw the valuation check service that it has previously offered on an informal basis, for the purposes of PAYE Health Checks and ITEPA Post Transaction Valuation Checks.

Both these categories of check often involve complex valuation scenarios, which absorb considerable valuer resource but result in no change to the valuation proposed. Currently, almost 90% of ITEPA Post Transaction Valuation Checks and PAYE Health Checks are accepted as submitted.

Accordingly, and in line with HMRC’s Promote, Prevent, Respond Compliance Strategy, SAV will be:

  • Providing further help to customers, to sustain and improve levels of compliance, by updating guidance in its Manual.
  • Considering the possibility of running a small number of Valuation Workshops for agents in 2016/17.
  • Working with colleagues in Special Employer Compliance, Large Business and the Risk & Intelligence Service, to identify the minority of cases from submitted returns where valuation tax risk exists and where a review of the valuation is appropriate.

 These informal services will be withdrawn with effect from 31st March 2016. Any requests for ITEPA PTVC/PAYE Health Check valuations received after this date will not be processed.

SAV will also be examining the valuation check service processes relating to Enterprise Management Incentives (EMI)Company Share Option Plans (CSOP), Save As You Earn share option schemes (SAYE), Share Incentive Plans (SIP) and Employee Shareholder (ES) valuations to consider how these services might be improved. In the meantime these valuation check services will continue as they stand.

Capital Gains Tax Post Transaction Valuation Checks, which SAV operates in conjunction with the Valuation Office Agency, will continue by way of the existing CG34 process”.

Pett Franklin’s Reaction:

We are concerned that HMRC’s withdrawal of PTVCs and Best Estimate Valuations with only 2 months notice could be a precipitous action which will adversely affect share schemes for some unquoted companies and be harmful to taxpayers and counterproductive for HMRC.

At the October 2015 Fiscal Forum (a meeting between share valuation practitioners and HMRC), HMRC reported that they were facing increasing demands from taxpayers to agree share valuations generally. It appears that work pressures have intensified since then. However, Best Estimate and PTVC valuations are only a minority of the share valuations that HMRC have to do and it is not clear what has caused this extra work load or whether these two particular very long standing procedures were the source of HMRC’s problems.

We consider an analysis of why HMRC is facing more work in this area and a consultation undertaken with all interested parties is necessary before any changes are made. Furthermore, if there are any changes, there should be a longer notice period – not the 2 months in HMRC’s announcement. The planning of share scheme awards often takes several months of preparation and so the short period of notice given is unreasonable.

It is not clear that the withdrawal of these arrangements will actually reduce HMRC’s work flow. The Best Estimate process allows companies to operate their PAYE system with confidence and by giving certainty as to the value of the shares for PAYE calculations it is also beneficial to HMRC because it streamlines the whole process of calculating and recovering the PAYE on a non cash form of remuneration where there would otherwise be uncertainty as to the amount of taxation. It is a procedure which companies do not always make use of but where they do it is of value to them in providing certainty, which therefore is also of value to HMRC.

The PTVC allows companies to go to HMRC on behalf of all their employees and reach agreement for Income tax (not just the PAYE collected by the company) as to the value of the shares awarded to them following an employee share award in an unquoted company. This allows the tax arising to be calculated on a coordinated and consistent basis and accurate tax returns submitted. Without this procedure, share valuation agreements with HMRC would have to occur following the submission of each person’s tax return. That uncoordinated process gives rise to the scope for a duplication of work by HMRC which can only increase compliance costs for taxpayers and HMRC. It might also mean that some employees might need to complete tax returns where this might previously not have been required.

The present PTVC system whereby the company, following the award, can ask HMRC to consider the valuation on a coordinated and timely basis is a good and valuable system which has worked well for a long time and has delivered benefits from certainty to taxpayers and HMRC as a result. It is only used for valuations which HMRC are likely to need to look at anyway in due course. It is a mistake by HMRC to withdraw the PTVC arrangement as this will lead to more work for them at a later date and less certainty for the taxpayer in the meantime

This lack of certainty could also have a negative effect by discouraging equity incentives in some unquoted companies. Some companies might prefer the certainty and ease of calculation that payments in cash give causing them to make fewer awards of shares. While that might reduce the workload of HMRC in this area, to some extent, that would be a bad unintended consequence and would damage the UK economy, as it would weaken one of the key instruments (share based incentives) that help promote growth in unquoted companies and through that the wider economy.

HMRC should withdraw their proposals and start a full consultation before pushing through a change which will be damaging to HMRC and the country in the long term.

Pett, Franklin & Co. LLP are experts in employee share schemes, share plans and executive incentives. To find out how we can help you in relation to the issues raised relating to valuations, call William Franklin on 0121 348 7878 or email William at