The Valuation Office Agency's (VOA) technical manual used to assess Capital Gains and other taxes.
Part 1 : Introduction
6.1 Overview of procedures
This section is divided into seven parts and gives guidance on the procedures to be followed when providing HMRC with valuation advice for compliance purposes both before and after HMRC have opened an enquiry into a self assessment tax return. In particular, in connection with:
- The ‘initial appraisal’ of all first reference valuation requests (see Part 2).
- The provision of a ‘not negotiated’ valuation/apportionment before the opening of an enquiry into a self assessment return. This may be used by HMRC as part of their risk assessment process to assist them in deciding whether or not an enquiry should be opened. This is sometimes referred to as a ‘risk valuation’ (see Part 3a).
- The provision of a ‘not negotiated’ valuation/apportionment after an enquiry into a SA return has been opened so HMRC can decide if there is tax at stake in a particular case (see Part 3b).
- The negotiation of an ‘agreed’ valuation/apportionment where HMRC has decided that the value under consideration needs formal agreement so that the tax liability may be established (see Part 4).
- The procedures to be followed if it is not possible to reach agreement on a valuation/apportionment (see Part 5).
- The procedures to be followed if it is necessary to refer a valuation/apportionment to Tribunal for determination (see Part 6).
- The provision of either a ‘not negotiated’ or an ‘agreed’ valuation after a taxpayer, in advance of their self assessment return being submitted, requests a ‘Post Transaction Valuation Check’ (PTVC) (see Part 7, para. 128 et seq) 8.The provision of advice through the LPVU to assist in the agreement of 1982 portfolio valuations (see Part 7, para. 6.135 et seq). 9.The provision of advice on the ‘value ascertained’ for IHT at the date of death when the taxpayer has acquired the property by inheritance (see Part 7, para. 6.137 et seq.. 10.Advice on whether or not development value is reflected in the consideration for a disposal (see Part 7, para. 6.141 et seq).
- Advice on the apportionment of compensation for disposals on compulsory acquisition (see Part 7, para. 6.147 et seq.
For cases involving claims for Private Residence Relief reference should be made to Section 8 of this Manual.
6.2 Interaction with self assessment procedures
There are strict rules governing the circumstances in which HMRC may formally open an enquiry into a self assessment return.
In pre-enquiry valuation requests, contact with taxpayers by the VOA could be construed as the formal opening of an enquiry and could lead to a compromise of HMRC’s statutory position. Therefore, unless expressly authorised to do so, VOA caseworkers must not contact the parties for information about any property to be valued. In any pre-enquiry cases, where, unusually, the VOA is authorised to approach the parties, the opening letter must make it clear that the approach is not to be treated as the opening of an enquiry unless the instructions from HMRC advise otherwise.
In addition where references are made under the PTVC procedure care must be taken to ensure that taxpayers who fail to meet their statutory obligations with regard to time limits for filing their return, and thereby may incur penalties, cannot point to the VOA as a cause of that failure.
Reference of cases
6.3 Definition of a case for CGT purposes
A separate case should be created for each separate ‘disposal’ (ie. sale/transfer) regardless of the number of valuation dates. If a single disposal relates to the sale/transfer of a number of separate properties by one taxpayer, on one date for a single consideration then just one case should be created to include all properties located within a sector team area. A case arising from a single disposal but relating to properties within several sector team areas will constitute separate cases for each of those team areas.
Some examples are:
Following a gift HMRC requests a valuation of a property as at the date of disposal and in 1982. Whilst this is two valuations it relates to one disposal and should be treated as one case.
Following a part disposal HMRC requests a valuation of the whole property in 1982 and a valuation of the retained interest at the date of disposal. Whilst this is two valuations it relates to one disposal and should be treated as one case.
Where there are two disposals of separate properties at different dates (even if within the same tax year), if a valuation is required of each property then there should be two separate cases. (HMRC should normally refer the two valuations on two separate CG20s.)
A company transfers a portfolio of five properties to another company as one transaction (ie. they are all transferred on the same day for a single sum) . Three properties are located in one sector team area and each of the other two properties are located in two other separate team localities. This should be registered as three cases, one for each sector team location (one case for three properties and two other cases for one property each).
A company transfers a portfolio of five properties to another company in a series of single transactions. All the disposals are made on the same day but a separate consideration has been agreed for each property. As there are five separate disposals these should be registered as five separate cases.
In CGT cases, where the taxpayer has claimed Private Residence Relief and HMRC has requested both valuation advice and advice as to the identity of the “permitted area”, the reference will constitute two cases.
6.4 Routing of cases and multiple requests
Requests for valuation advice should normally be sent by HMRC to the appropriate central registration centre and not to the local office. If any ‘referred back’ cases are sent direct to a local office the caseworker should ensure that they are registered centrally.
In multiple requests where the properties are located in several different locations but all within the same sector team area, the sector leader should decide on the most appropriate arrangements for caseworker allocation and issuing a report to HMRC. If the properties are located in more than one sector team area then the sector team with most properties should take the lead in co-ordinating the valuations (or if there are an equal number of properties then the highest by value). Any necessary liaison with other caseworkers should be undertaken before a report is issued to HMRC or an opinion of value put to the taxpayer. (See 6.5 below for multi-caseworker and ‘parent & child’ case procedure).
Where a taxpayer regularly makes a large number of disposals each year they may be included in the CGT Multiple Land Valuation Scheme, and cases will be referred via the LPVU, (see Part 7, para 6.132.
Cases concerning the valuation of unusual interests may sometimes be co-ordinated by SVT Policy & Professional who will issue ad hoc instructions..
Cases in respect of quarries, mines, mineral bearing land together with associated process plant, waste/landfill sites and requests for advice re land contamination should be allocated to the Mineral Valuer.
Cases in respect of trade chattels (eg. process plant, machine tools, office furniture, computer systems and vehicles) should be allocated to the Building & Machinery Valuers.“
For other specialist properties consideration should be given to enlisting assistance from the National Specialist Unit. In such instances the request should be directed by the SVT case owner to the Head of the appropriate NSU team in accordance with the Specialist Protocol (available on the SVT intranet page).
6.5 Multi-caseworker (parent and child) case procedure
A multi-caseworker case is any single HMRC case in which more than one SVT, BAMS or MV caseworker will be involved in providing the advice requested. This will include all cases where there is more than one caseworker involved, regardless of whether those caseworkers are based in the same or a different geographical team
On receipt of a multi-caseworker case a ‘parent case’ should be created for the co-ordinating caseworker and a ‘child case’ for each of the other caseworkers involved. The case allocated to the co-ordinating caseworker (see 6.4 above) is known as the ‘parent case’ and should be registered in CRAC in the normal way. At the same time, a separate case should be registered for each other caseworker involved using case type 901 and will be referred to as the ‘child case’. The CRAC number of the ‘parent case’ should be input in the ‘Remarks’ field for the child case and similarly the CRAC number of the child case should be input in the Remarks field for the relevant parent case.
If either a parent or child case is allocated to a NABS or MV caseworker the appropriate specialist involvement should be recorded as ‘PT’. (In Capital Allowances cases the co-ordinating caseworker will initially always be the NABS caseworker).
When the child case owner has completed their part of the case they must send their report to the parent case owner and report the child case in CRAC in the normal way. The parent case owner is responsible for issuing the complete report to the client for all the properties involved and for ensuring that the parent case is then reported in CRAC. As a safeguard, the parent case owner should check that all the child cases have been reported on CRAC before reporting the parent case.
The parent case should be reported as normal, ie. at the full value(s) of all the properties included in the report.
6.6 Valuation requests from HMRC
HMRC, which for the purpose of these instructions include references from the LPVU, may ask VOA to give the following advice when needed in respect of Capital Gains Tax:
(1) A pre-enquiry, ‘not negotiated’ valuation/apportionment for risk purposes.
The information available to HMRC will usually be limited to that included on the SA return. The VOA are asked to make their best judgement regarding the valuation based on office records. A copy of the CGT computation will usually be attached to assist the VOA in assessing the tax significance of the valuation. See procedure in Part 3a below.
(2) A post-enquiry, ‘not negotiated’ valuation/apportionment on a fully informed basis.
There are three circumstances when such requests are made;
(a) following a pre-enquiry risk valuation which was not revealed to the taxpayer due to the limited information available and uncertainty over the valuation;
(b) a first reference request where an enquiry has been opened due to concerns by HMRC about the valuation;
(c) a first reference request where an enquiry has been opened for non valuation reasons and the valuation review is incidental.
These requests will usually be made on a form CG20 (or other format using the same heads of information). Full information, as set out below should be provided. VOA should assume that these valuations are tax significant unless HMRC advise otherwise. See procedure in Part 3b.
(3) A post-enquiry, referred back ‘negotiated’ valuation/apportionment.
This may either follow a pre-enquiry risk valuation that was revealed to the taxpayer or a fully informed ‘not negotiated’ valuation. The taxpayer will have signified their disagreement with the VOA’s ‘not negotiated’ figure. See procedure in Part 4.
(4) A post-enquiry, first reference ‘negotiated’ valuation/apportionment.
These will be unusual as normally a ‘not negotiated’ request is made in the first instance. HMRC’s request to the VOA for advice should normally be made on a form CG20. See procedure in Part 4.
(5) A post transaction valuation check (PTVC).
These will be made on form CG20 together with a copy of form CG34. These will usually request a ‘not negotiated’ valuation but may sometimes request ‘negotiated’ opinions. See paras 6.128 et seq.
6.7 Other requests for advice
In addition to requests for opinions of value HMRC may require other advice to enable them to compute a taxpayer’s CGT liability. These will often be made by memorandum and may include:-
Development value – If an asset was owned on 6 April 1965 HMRC may request advice on whether the consideration for a disposal reflects ‘development value’ (see paras 6.141 et seq).
Apportionments – HMRC may request the apportionment of an acquisition price where the land disposed of was acquired with other land, or the apportionment of the consideration received on a disposal where only part of the land is entitled to a relief or exemption. (See Section 8 for requests concerning the identification of the permitted area and apportionments for Private Residence Relief. Part 6 of Section 8 includes some general advice on the approach to be adopted when carrying out an apportionment which is applicable in all cases)
Expenditure on improvements – If an asset was owned on 6 April 1965 HMRC may ask for a valuation ignoring any enhancement in value resulting from expenditure on certain improvements. This is needed when para 16(5) Sch 2 TCGA 1992 applies. The figure required in these cases is the value of the asset immediately before the item of expenditure was incurred and HMRC will provide a full description of the improvements to be ignored. In giving a valuation in such cases caseworkers should stress that the valuation is on a notionally unimproved basis and should set out precisely the improvements which have been ignored. In all other respects the normal procedures should be followed.
6.8 Land Portfolio Valuation Unit (LPVU) requests
All requests from HMRC’s Large Business Service and Local Compliance Large & Complex Businesses are routed through the LPVU.
Taxpayers who make over 30 disposals requiring 31 March 1982 valuations in one tax year may be included in the ‘Multiple Land Valuation Scheme’.
For the purposes of these procedures requests received from the LPVU should be treated as requests from HMRC and registered in the same way.
Further information about the work undertaken by LPVU is set out in para 6.132 et seq.
6.9 Requests from HMRC shares and assets valuation (SAV)
Requests from SAV for valuations needed for CGT purposes may arise in one of two ways:
1. When SAV have been requested by HMRC to value unquoted shares in a company they may need valuations of property owned by the company. Requests for such valuations will normally be made on form SAV/VOA1 but may in some instances be made by memorandum. These cases should be dealt with in accordance with the procedures set out in the Inheritance Tax Manual, Section 16, which applies to all unquoted share references from SAV.
2. In cases involving the disposal of certain specialised properties (such as hotels, restaurants, residential nursing homes, public houses, cinemas, theatres, bingo clubs, gaming clubs, petrol filling stations and other types of leisure property) where both the business and the property have been sold or transferred, HMRC will initially refer the papers to SAV. The purpose of this procedure is to enable SAV to review the papers and, if a separate valuation has been returned in respect of any goodwill, to endeavour to agree whether or not there is any transferable ‘free’ goodwill which comprises a separate asset. Requests for any valuations required in these cases will be made by SAV in memo form and should be dealt with in accordance with the procedures set out in this Section.
6.10 Information to be provided by HMRC
Wherever possible HMRC will provide the following information, although in pre-enquiry requests, the information will be limited to that included in the SA return:-
the name of the taxpayer and any agent
address of the property to be valued together with a location plan if this assists identification
details of the transaction giving rise to the request
details of the taxpayer’s interest in the property and any known lettings
in the case of apportionments, details of the parts of the property between which an apportionment is required
the valuation or apportionment put forward by the taxpayer, together with copies of any professional valuations
a copy of the CGT computation
If it is not possible to identify the property from the information provided, before requesting HMRC to provide further details, the VOA’s SDLT transaction records should be searched to see if it is possible to identify the property from any SDLT record for the disposal.
If HMRC send original documentation that they want returned then this should be returned to them after it has been scanned into the EDRM file.
6.11 Advice on questions of principle and law
Caseworkers may seek advice on questions of principle or legal interpretation from SVT Policy & Professional. Such requests should normally be made via the sector leader.
6.12 Reporting responsibility
It is the caseworker’s responsibility during the life of the case and at reporting stage to ensure that all input data, such as case type, credit type, caseworker name, value returned & reported, date of receipt etc. are correctly recorded on the computerised records and reflect any amendments.
At reporting stage or sooner, where the caseworker becomes aware from inspections or other sources, that there are inaccuracies in the VOA survey records such as floor areas, coding etc it is important for the caseworker to ensure that this is brought to the attention of the appropriate VOA team for updating.
6.13 Enquiries from the public
With the exception of references from HMRC in connection with Post Transaction Valuation Checks, and Property Portfolio Valuations, see part 7 of this Section, the VOA must not enter into any form of prior agreement of property values which may be required to calculate a CGT liability. Consequently caseworkers must not engage in any discussions, negotiations or agreements with taxpayers or their agents concerning CGT valuations before receipt of a case reference in respect of the property involved.
Taxpayers making enquiries before a case has been received by the VOA should be advised to contact the HMRC office where that taxpayer’s tax returns have to be submitted. HMRC can then, if necessary, submit a request for advice to VOA.
Except when negotiating cases no discussion on values should be entered into with taxpayers or their representatives either formally or informally.
Liaison with HMRC
6.14 On receipt of case
On receipt of a CGT reference from HMRC (whether on CG20 or by memorandum) the caseworker should ensure that the valuation or advice requested is clearly understood. If not, the reference should be returned to HMRC within 5 working days with a request for clarification and the case closed.
Whenever possible minor errors or omissions should be resolved by discussion with HMRC.
All requests for valuation advice should be acknowledged within 10 working days of receipt unless the case is already reported within this period under the sifting procedure. The acknowledgement should include the name of the caseworker, their location, and telephone number.
6.16 Liaison with HMRC during life of case
In addition to sending formal progress reports to HMRC, VOA caseworkers are encouraged to maintain informal contact as good customer care. Where cases are proving difficult to settle a discussion with HMRC may produce a solution.
6.17 Timeliness targets
Various timeliness targets have been agreed with HMRC as part of the Service Level Agreement. These are reviewed annually and the performance is regularly monitored. Time limits are expressed as average elapsed times, so it is important for the case to be dealt with expeditiously throughout its life.
The current timeliness targets are:
deal with ‘initial appraisals’ within an average elapsed time of 5 working days
report ‘not negotiated’ valuations within an average elapsed time of 20 working days
report ‘negotiated’ valuations within an average elapsed time of 100 working days
If cases exceed the above target times every effort should be made to report ‘not negotiated’ cases within a maximum of 30 working days and ‘negotiated’ cases within 6 months.
A summary of all the various timeliness targets and intermediate time limits are included at Appendix 13.
6.18 Interest payments
Under s.86 Taxes Management Act 1970 (as amended) a taxpayer is liable for interest on unpaid tax. In addition interest is payable on any increased tax liability arising from an adjustment to a valuation included in a tax return. VOA caseworkers must therefore ensure that they cannot be said to have contributed to delays in dealing with cases and every effort must be made to adhere to the time limits laid down.
All casework should be regularly monitored to ensure that:
- simple cases are reported quickly
- requests for information are made promptly
- any difficult points of principle or law are referred for advice in accordance with para 6.11 above
- where a negotiation case cannot be agreed the unagreed/DOA procedures are implemented without delay
6.19 Interest Review Unit (IRU)
The Interest Review Unit of HMRC Debt Management & Banking considers cases where a taxpayer objects to paying interest on tax due, alleging unreasonable delays on the part of HMRC.
If the VOA has been involved in a case the Interest Review Unit will ask SVT Policy & Professional for a report on the circumstances. SVT Policy & Professional will ask the sector leader for a diary of action and a brief report to be forwarded within 5 working days.
6.20 Claims for financial redress
Occasionally taxpayers may seek compensation for extra or unnecessary costs incurred as a result of the VOA’s handling of a case. Any such claim has to be carefully considered against the principles set out in the VOA booklet “Our Code of Practice on Complaints’”.
In addition to putting mistakes right (where possible) and apologising, the VOA will consider whether financial redress might be appropriate. Financial redress is appropriate if we have made an error, caused unreasonable delay or given misleading information. The VOA will reimburse any reasonable additional costs that the customer has incurred as a direct result of our error or delay (see Section 5 of the Customer Services Manual).
If a claim is received by the caseworker it should be forwarded immediately to the SVT Customer Service Manager.
Part 2 : Initial Appraisal
6.23 Case registration and procedure
All new first reference HMRC (non-IHT) cases except LPVU portfolio valuation cases and case type 195s, should initially be registered as credit type 05 and be subject to an initial appraisal using the sift procedures outlined below. Referred back cases should be registered as credit type 03.
All initial appraisal cases should be subjected to sifting procedure consisting of:
Stage 1 – initial opinion and risk assessment by nominated sifter.
Stage 2 – consideration by caseworker and initial valuation (if required).
Sifting procedure – stage 1
6.24 Stage 1 – general
An initial sift of all incoming cases should be made by the sifter. The objective of this stage of the procedure is to form an initial opinion of whether or not the figure returned can be accepted. If the sifter decides that the case does not require caseworker attention and that the value(s) returned is broadly acceptable it should be reported back ‘as returned’ to the client at this stage. If the valuation returned by the parties is not acceptable, but having regard to the advised potential tax relevant range it is considered that any likely alteration to the valuation is unlikely to be tax significant, the case should be reported back on the basis that “no question need be raised” on the valuation returned”.
If the opinion lacks confidence or where the returned figure is unacceptable, the sifter must make a positive decision that the case requires caseworker attention.
In the absence of a figure returned, if the sifter has sufficient confidence in their initial opinion this can be supplied directly back to HMRC or alternatively reference should be made for caseworker attention. In either event this requires a change in credit type to 01.
When the returned value is accepted and reported ‘as returned’ the credit type remains at 05. If the value is not acceptable the case should proceed to stage 2, below. Whenever a ‘not negotiated’ opinion of value is provided in accordance with Part 3, the credit type should be changed to 01.
6.24 Sources of information
The sifter should consider the returned valuation figure from the desk, using information that is readily available. The objective is to decide on the basis of the available information whether the returned figure is acceptable or, if not, the likely range of figures to inform the risk assessment exercise.
Potential sources of information are set out in detail in Appendix 24 [include hyperlink].
6.25 Factors to be reflected
The relevant factors that will influence this decision are set out in detail in Appendix 24
There will be many occasions when it will not be necessary for the sifter to come to their own figure, it being obvious at an early stage that the figure returned is acceptable.
The sifter’s reasoning must be recorded in all cases.
6.26 Valuation tolerances
When considering whether a returned figure is reasonable it is appreciated that caseworkers will often decide to take no further action if it falls within what they consider to be normal valuation tolerances. Valuation tolerances are widely used throughout the surveying profession because it is generally recognised that valuation is not a precise science and, short of exposing a property to the market, it is normally impossible to judge precisely what a purchaser would have paid for it at a particular point in time. The valuer may, therefore conclude that any value falling within a given range is reasonable.
It is important to avoid a mechanistic approach when applying tolerances. This is because it is normally the case that the more difficult a property is to value, the wider the range of tolerance is likely to be. The range band will vary with regard to such factors as type of property, availability of comparable evidence, state of repair, development prospects etc. Caseworkers should employ caution when using tolerances, especially in the case of high value properties.
When caseworkers carry out an Initial Appraisal it is important to make a judgement on whether or not a case is worth pursuing further. This judgement should be based on the particular facts of each case but caseworkers need to take a pragmatic view when weighing up the information and evidence available at the Initial Appraisal stage. Cases should not be pursued further unless there is a realistic prospect of securing a meaningful adjustment to the figure returned and clear evidence to support the opinion of value being sought. If a case is pursued further and it is then later decided that the figure returned is acceptable this may cause inconvenience for both HMRC and the taxpayer, and it is not an efficient use of our resources. Whilst this may sometimes be unavoidable, for instance when further information becomes available following an inspection or during negotiations, the aim should be to keep such cases to a minimum.
Sifting procedure – stage 2
6.27 Stage 2 - process
On notification of a case that the sifter has passed on as being worthy of caseworker attention, the caseworker should not immediately convert the case from credit type 05 to 01 (or 02, if it is a first reference ‘negotiation’ case). Rather they should review the sifter’s decision and reasoning and, with the addition of their local knowledge (and a call to HMRC if necessary) consider again whether the case can be reported back immediately. It is considered that a significant number of cases passing initial sift will still fall to be reported back ‘as returned’ immediately this way.
After this initial consideration, if the caseworker believes that the case merits a full valuation it should then be converted to 01 (or 02 if it is a first reference negotiation request) and dealt with accordingly. It is important to make this change to the credit type during the life of the case and not just on reporting so as to ensure the accuracy of timeliness statistics.
If the caseworker decides that the case merits a full valuation then the case should be dealt with in accordance with the instructions for ‘not negotiated’ valuations in Part 3.
In some circumstances the sifter may also complete this stage 2 process and report a ‘not negotiated’ opinion of value and if so, should ensure that the credit type is changed from 05 to 01.
Part 3: not negotiated references
Part 3a: pre-enquiry request for a ‘risk valuation’
HMRC may sometimes request a valuation to inform their ‘risk’ review of whether or not to open an enquiry into a self assessment (SA) tax return. This is typically a request for a quick overview to establish if the returned value can be accepted in broad terms or is likely to be a risk in which case advice will be provided as far as possible to inform HMRC. The format of the request will normally be a standard form of stencil or memo.
6.31 Information to be provided
The request to the VOA should include:
all relevant information derived from the SA tax return including in most instances a CGT computation
any information that the property might be tenanted from a source other than the SA return
No additional information is usually available to HMRC without opening an enquiry and contacting the taxpayer. As the whole point of these valuation requests is to avoid this, it is important to give valuation advice wherever possible based on the information available, which includes the VOA’s transaction and survey records. Where information is lacking, the caseworker should make such assumptions as seem reasonable and unlikely to give rise to substantial error in valuation.
Exceptionally, if it is impossible to identify the property or interest described then HMRC should be advised.
6.32 Requests subject to alternative valuation assumptions
In addition to specific requests for valuation or apportionment advice HMRC may, for residential property, ask for both a tenanted and ‘vacant possession’ value, where no indication is provided on the SA return. These alternative valuations will help HMRC assess the tax at risk.
6.33 Initial appraisal and valuation review
The VOA will in these cases carry out an initial appraisal using the sift procedures described at Part 2 above. Where the returned valuation (if known):
i) is broadly acceptable, the caseworker should report ‘as returned’ or in instances where a tax relevant range has been provided use ‘no question need be raised’.
ii) is not acceptable, valuation advice should, wherever possible, be provided based on the information provided and making reasonable assumptions (unless it is impossible to identify the property or interest described).
If the information is so limited that a ‘risk valuation’ cannot be provided due, for example to being unable to identify the property then HMRC should be informed accordingly. Wherever practical some explanation or general guidance on value should be provided to inform HMRC’s risk assessment but if this is impractical the papers will be returned with the appropriate endorsement (see para. 6.34(d) below). Before returning the papers to the caseworker should advise HMRC by phone to see if the problem can be resolved.
6.34 Reporting endorsement - confidence level
When a returned valuation cannot be accepted and it is necessary to report a ‘not negotiated’ figure to HMRC, caseworkers need to make their best estimate of value based on the information available and making reasonable assumptions. The ‘not negotiated’ report should clearly state the basis of valuation and detail any underlying assumptions, particularly where the value reported is substantially different from that returned. Where assumptions have been made that may be value significant, eg. the nature of tenancies, HMRC should be requested to advise the taxpayer of those assumptions when communicating the value to them.
In addition, HMRC should be informed of the strength of the evidence to support the valuation figure reported. The extent of factual information and comparable transaction evidence available for the property asset will vary from being sufficient, limited to inadequate. Having regard to this when reporting a ‘risk valuation’ it should be endorsed with a confidence level to assist HMRC’s risk assessment and guide case progression. The following endorsements should be used:
(a) Confidence level - reliable (asset clearly identified with good support)
(b) Confidence level – reasonable (some limitations or assumptions)
(c) Confidence level - limited (broad informal advice to be treated with caution due to lack of information, assumptions or complexity).
(d) We regret it is not possible to provide advice at this stage as we are unable to identify the property or relevant interest.
These endorsements may be expanded to provide an explanation. Examples might be:
The property was sold 6 months after the valuation date for £x and in my opinion this provides good evidence to support the above valuation.
The above valuation reflects the hope of obtaining planning permission for residential development but no planning permission was in place at the valuation date. There were particular uncertainties regarding the suitability of the access required for development at the valuation date and the above valuation may be subject to material variation when further information is available. It is possible that a reasonable valuation could be as low/high as £x.
6.35 Reporting endorsement - revealing ‘risk valuation’ to taxpayer
It is expected that the caseworker will be sufficiently confident in the majority of their ‘risk valuations’ for the figure to be passed on to the taxpayer together with the caveats included in the standard endorsements below. This will typically be appropriate to valuations provided with a confidence level of (a) or (b) above. In these instances the endorsement at (e) below should be included.
There will be a number of risk valuations that, without more factual information, will be insufficiently firm to submit for the taxpayer’s approval at this stage. This will typically relate to advice provided with a confidence level of (c). In these cases the endorsement at (f) below should be included together with brief explanation.
The advantage of revealing the risk valuation to the taxpayer is that it gives the taxpayer the opportunity to accept the valuation without further demands on either the taxpayer or the VOA and many cases are settled this way. This advantage must be balanced by concern that revealing an insufficiently reliable figure to the taxpayer may cause them unnecessary anxiety and in some instances give rise to complaint. For this reason, it is important when valuations are revealed to the taxpayer that endorsements are included in the report setting out the assumptions that are made – see 6.36 below.
Where the valuer has been asked to provide both a tenanted and a vacant possession value, it is considered that this uncertainty should be clarified before any expression of value is passed to the taxpayer and in this respect liaison between HMRC and the caseworker will be important to establish the correct basis of valuation.
The ‘risk valuation’ should be endorsed by either:
(a) I have no objection to your revealing my valuation to the taxpayer, but if you do, please ensure that following endorsements are passed on. (Include further endorsements as per (g) below)
(b) Do not reveal my valuation to the taxpayer at this stage as it is considered insufficiently reliable. (Explain reasons for this)
6.36 Reporting endorsements - standard
The caseworker should normally report using form VO1171.
A standard endorsement applicable to most ‘not negotiated’ reports is shown at (a) below. At (b) below is an endorsement which relates to a valuation significant assumption where a residential property is assumed to be subject to a tenancy protected by the Rent Act 1977.
(a) The above valuation is an informal estimate based on the information provided, VOA’s office records, such assumptions as appear reasonable and any assumptions stated below. It is made without the benefit of an inspection and may be subject to significant alteration if any of the information on which it is based proves to be incorrect.
(b) I have assumed that the property was subject to a tenancy protected by the Rent Act 1977 and that there was no imminent prospect of obtaining vacant possession.
Other endorsements relate to Landlord and Tenant act matters, undivided share discount or other significant assumptions.
It should be noted that endorsements should generally not be made where a valuation has been accepted ‘as returned’. It is particularly important in ‘Post Transaction Valuation Check (PTVC)’ ‘as returned’ cases not to use the above endorsement (g) as this might leave the taxpayer unsure whether their valuation is accepted whereas the purpose of the PTVC service is to give taxpayers some certainty before they submit their SA tax return.
6.37 Reporting endorsement - information required
Another endorsement that may be appropriate relates to unusual or specific property information that is lacking and is necessary to assist in providing a reliable valuation. On opening an enquiry and prior to referring the valuation back to VOA for negotiation, HMRC are asked to seek further essential information, using their information powers if necessary. This should minimise delays in the VOA seeking that essential information. HMRC are asked to provide:
a full and clear address of the property (together with a plan if appropriate)
essential details of the interest owned (freehold or leasehold and if leasehold essential lease terms)
essential terms of the occupation/tenancy where let or occupied
However, the caseworker completing the initial review may be in the best position to highlight specific or unusual information that is critical to providing reliable advice that might not be otherwise forthcoming in answer to the above general questions. In this scenario the caseworker should include an endorsement explaining the unusual or specific information required.
Part 3b: Request for post enquiry ‘not negotiated’ valuation
6.38 Informed ‘not negotiated’ valuation
Where an enquiry has been opened following a ‘risk valuation’, HMRC may ask the VOA for an informed ‘not negotiated’ valuation or a ‘negotiated’ valuation. The former will typically be requested when the risk valuation was not sufficiently reliable to be put to the taxpayer.
In addition, first reference requests for a ‘not negotiated’ valuation are also sometimes made if an enquiry has been opened due to concern over the property valuation or equally in respect of other matters on the return and the property valuation is just one of several issues being reviewed.
HMRC’s request to the VOA for advice should usually be on form CG20 (or other format using the same heads of information).
The caseworker should generally assume that post-enquiry valuations are likely to be tax significant and worthy of in-depth consideration. However, HMRC are asked to provide a guide on tax significance so that the VOA can focus resources on tax material valuations and not waste time considering a range of values that would not alter the computational gain or loss. A CGT computation will usually be provided in these cases.
6.39 Initial consideration
On receipt of a request for a post enquiry ‘not negotiated’ valuation or apportionment the sift procedures as set out in Part 2 of this Section should be followed. If the case reaches the stage 2 sift and cannot be accepted ‘as returned’, the caseworker should examine the papers to decide which of the following scenarios apply:-
sufficient information is available to provide a valuation
further essential information is required
the case is complex or sensitive and warrants treatment as a request for an agreed valuation (see para 6.42)
6.40 Further information required
Where information is lacking the caseworker should make such assumptions as seem reasonable and unlikely to give rise to substantial error in valuation. Where the information available to the caseworker does not enable the making of reasonable assumptions and where in particular there is uncertainty concerning the extent of the subject property, the nature of any interest to be valued and/or the nature of any subordinate interests, rights of occupation or onerous restrictions, the caseworker should notify HMRC within 10 working days of receipt of the case, clearly specifying the information required and requesting HMRC to obtain it. The case should then be closed (reporting off on CRAC at £0).
When the papers are returned to the VOA with the required information a new case should be opened and the appropriate procedures followed.
6.41 Reporting and endorsements
If a valuation has been put forward by the taxpayer the caseworker should decide, on the basis of any information provided by the taxpayer together with knowledge of the property and office records, whether or not the figure may be accepted.
Where sufficient information is available to enable a valuation to be carried out and the taxpayer’s valuation can be accepted the figure should be reported ‘as returned’.
The caseworker should normally report on form VO1171.
If the taxpayer’s figure cannot be accepted, or no valuation has been put forward by the taxpayer, the VOA should report his opinion of value endorsed ‘not negotiated’. The report should clearly state the basis of valuation and detail any underlying assumptions particularly where the value reported is substantially different from that returned.
Endorsements as per Section 6.34 to 6.37 should be included in the report, including confidence levels and assumptions. It is expected that the confidence level will be either reliable or reasonable because information should normally be available in these post enquiry cases and consequently there should be no objection to the valuation being revealed to the taxpayer.
Whilst a valuation reported ‘as returned’ as part of the sift process has a credit type 05, when it is reported ‘as returned’ following the seeking of additional information, more in-depth research or an external inspection then it should be given a 01 credit type.
6. 42 Complex cases - ‘not negotiated’ procedure inappropriate
A request for a not negotiated valuation (credit type 01) may be converted to an ‘agreed’ valuation request (credit type 02) where:
Due to the complexity or sensitivity of a particular valuation it is decided that it would be preferable to treat the referral as an ‘agreed’ request – as this will allow the caseworker to obtain all relevant information from the taxpayer, carry out an internal inspection and discuss the issues with them.
The valuation involves consideration of whether significant hope value for an alternative use existed at the valuation date - so it will be necessary for the caseworker to ascertain the full planning position and obtain further information before putting forward a firm opinion of value.
Exceptionally, the HMRC caseworker agrees that it would be best if essential information is obtained by the VOA direct from the parties.
Post enquiry ‘permitted area’ cases, described in Section 8, where the taxpayer’s contentions cannot be accepted should be treated as complex.
In these instances it is important that the caseworker should, within 10 working days of receipt of the case, explain the situation to the HMRC caseworker and seek their agreement to the request being treated as a request for an agreed valuation, with appropriate contact with the parties. This is important as in some cases an enquiry into the tax return may not be open and such contact will not then be possible.
If HMRC has no objection to the case being converted, the caseworker should alter the credit type to 02 and proceed in accordance with Part 4 of this Section.
Once an opinion of value has been established, the caseworker should, when commencing any negotiations, advise HMRC of their valuation and seek confirmation that the matter remains tax material.
Not negotiated – general
There must be no internal inspection of the property nor contact with the taxpayer or agent. An external inspection may be made if necessary but care should be taken to avoid delay. ‘Risk valuations’ are usually completed from the desktop.
6.44 Time limits and progress reports
The timeliness targets are described in para. 6.5 above. If a case is still outstanding after 30 working days from receipt, an update of the position should be given to HMRC and thereafter at 20-day intervals. Telephone contact is often preferable to a formal note.
All cases should be reported within two months from receipt.
6.45 Action by HMRC on receipt of a ‘not negotiated’ valuation
On receipt of a ‘risk valuation’ HMRC will consider the tax significance in the light of the VOA’s stated confidence level and decide whether to open an enquiry. On opening an enquiry, HMRC will usually reveal the VOA’s valuation to the taxpayer in instances where VOA indicates in their report that they have no objection. They will indicate that the VOA’s advice has been given on the basis of the information presently available particularly with regard to any assumptions made and pass on appropriate endorsements. HMRC will invite acceptance of the VOA’s figure and where it is not acceptable, ask for an explanation, any supporting evidence and any information that is lacking.
On receipt of an ‘informed not negotiated’ valuation, HMRC will consider the tax significance and if appropriate reveal to the taxpayer the VOA’s valuation(s). They will indicate that the VOA’s advice has been given on the basis of the information presently available particularly with regard to any assumptions made. HMRC will invite acceptance or seek an explanation of why it is unacceptable.
Where the taxpayer is not prepared to accept the VOA’s valuation HMRC will refer the case back to VOA, and request that values are negotiated. HMRC will forward any comments or supporting documentation made by the taxpayer about the VOA’s valuation and assumptions.
Part 4: Negotiation cases - request for agreed valuation
6.48 When required
In the following circumstances negotiations may be necessary with the taxpayer (or agent) and other interested persons (see paras 6.62 et seq) with a view to reporting the case either ‘agreed’ or, if necessary, ‘defendable on appeal’ (see Part 5):
following a ‘not negotiated’ valuation report when the taxpayer has requested an opportunity to negotiate
when HMRC requests an ‘agreed’ valuation on first reference to the VOA
where, in the circumstances detailed at para 6.29, a ‘not negotiated’ request is converted into a request for an ‘agreed’ valuation due to its complexity
In 6.48(1) above, where the taxpayer approaches the VOA directly to discuss the valuation, the caseworker should refer to HMRC for instructions before opening negotiations.
6.49 Initial consideration
Where a valuation is referred back for an agreed valuation (credit type 03) the caseworker should carry out a fresh appraisal to review any further information supplied to consider whether the returned valuation may be accepted (see para 6.55 below). If the review results in a substantial change to the ‘not negotiated’ opinion of value, although not sufficient to report ‘as returned’, HMRC should be advised (preferably by phone) so that the tax significance can be reappraised.
First reference requests for an ‘agreed’ valuation should initially be registered as credit type 05 and be subject to an initial appraisal in all instances except where the request is from the LPVU. Where the valuation returned cannot be accepted at this stage, the caseworker should convert the case to an ‘agreed’ valuation request, credit type 02. It is important for this to be done during the life of the case and not left to reporting stage to avoid distorting the timeliness statistics.
Where the initial request is for a ‘not negotiated’ valuation, it may be converted to an ‘agreed’ case, as in para 6.48(3) above, provided it is clear from the instructions that the Inspector has notified the taxpayer of the action taken. In these instances particular regard must be had to the provisos in para 6.2.
If a previously provided valuation is referred back for further consideration with a request that no negotiations are entered into then a new case should be opened with a credit type 01.
If it is necessary to refer back to HMRC for clarification of the interest to be valued then the case should be closed pending receipt of the advice. This action should also be taken where it becomes apparent from discussion with the parties that HMRC have requested an incorrect interest to be valued. An example is where HMRC have requested an entirety valuation when it becomes apparent that an undivided half share is required.
Where the case has been registered as a negotiation case the procedures in this Part should be followed.
Information Needed from the Taxpayer
6.50 Information to be sought from Taxpayer or Agent
On opening an enquiry HMRC will often seek essential information relating to the extent of the property, subordinate interests, rights of occupation or onerous restrictions. If HMRC are unable to provide all the information required the caseworker should seek to obtain any further information from the taxpayer, or agent, within 20 working days of receipt of the case. The request for information should include a date by which it is required (usually 20 working days) and also advise the taxpayer, or agent to contact you if they are unable to meet this date. It is important for caseworkers to carefully consider the further information needed to ensure that they do not request information that has already been provided.
6.51 No reply to request for information
If no reply is received to a request for information a reminder should be issued after 20 working days. The reminder should set out the information required again and advise the taxpayer that if it is not received within 20 working days the matter will be referred to HMRC to consider seeking the outstanding information formally. If a substantive reply, or a refusal to supply the information, has not been received after a further 15 working days then the caseworker should telephone to seek an explanation for the delay. If the information is still not received by either 20 working days from the issue of the reminder, or by the revised date agreed in the telephone call, HMRC should be notified and asked to consider using HMRC’s information powers (Schedule 36, Finance Act 2008) to obtain the outstanding information. Pending receipt of the required information, the file should be closed.
The taxpayer or agent should be notified of the request to HMRC to obtain the information.
HMRC will advise when the required information has been obtained. If the information is received by the VOA direct from the taxpayer, or agent, after HMRC has been asked to consider a formal request the caseworker should immediately notify HMRC, so that any formal action may be halted. The caseworker should then reopen the case and proceed with the valuation and any negotiations required.
6.52 Contact with Taxpayer or Agent
A letter should be sent to the taxpayer, or agent, advising that the case has been received and the name of the caseworker to whom it has been allocated within 20 working days of receipt of the case.
6.53 Inspections and confidentiality
In negotiation cases caseworkers should make such inspections as are considered necessary before entering into negotiations with the taxpayer or agent. What is necessary will depend on the facts of the case but for recent valuation dates caseworkers should normally endeavour to internally inspect all properties where the returned figure cannot be accepted.
a. Statutory powers
Paragraph 12A of Schedule 36 of the FA2008 (inserted by paragraph 5 of Schedule 48 of the FA 2009) provides that an officer of Revenue and Customs may enter and inspect premises (and any other property on the premises) for the purpose of valuing, measuring or determining the character of the premises or property if the valuation, measurement or determination is reasonably required for the purpose of checking any person’s position as regards capital gains tax or corporation tax in respect of chargeable gains. A person who the officer considers is needed to assist with the valuation, measurement or determination may enter and inspect the premises or property with the officer.
This statutory inspection power is subject to conditions contained in paragraph 12B. An inspection using the statutory power contained in paragraph 12A may be carried out only if either Condition A or Condition B is satisfied. Condition A provides that the inspection is carried out at a time agreed to by the relevant person, and that the relevant person has been given notice in writing of the agreed time of the inspection. Condition B provides that the inspection has been approved by the tribunal, and any relevant person specified by the tribunal has been given at least 7 days notice in writing of the time of the inspection.
In most cases it will usually be possible to arrange an inspection for valuation purposes with the taxpayer (or the current owner or occupier of a property) by agreement without resorting to formal use of the statutory powers. When arranging inspections by agreement caseworkers should always follow the advice contained in the following paragraphs and if in any case inspection is refused or frustrated caseworkers must refer details of the difficulty to SVT Policy & Professional in accordance with sub-paragraph (c) below. Procedures for approving the issuing of notices to exercise the statutory powers and references to the tribunal for approval to meet the requirements of Conditions A and B above have been agreed with HMRC and SVT Policy & Professional will advise the caseworker on the appropriate action to be taken.
b. Conduct of inspection
Caseworkers should always give prior notice of a proposed inspection and, if possible, confirm any verbal arrangements in writing before an inspection is undertaken. For tax confidentiality reasons the particular purpose of the inspection must not be disclosed to anyone other than the taxpayer, an ‘interested person’ (see paras. 6.62 et seq) or their agents. If some limited disclosure to anyone else is considered necessary the use of the phrase “for tax purposes” is appropriate.
If a caseworker is confronted with a situation where only a minor (child) is present on the premises, under no circumstances should any inspection of the property be made either internally or externally. This also extends to the taking of, or checking of external dimensions. On returning to the office, the caseworker should send a letter to the occupier explaining the circumstances and, an appointment should be made with a request that an adult will be present on the next occasion.
In all cases the caseworker should produce an authority to inspect.
c. Inspection refused
If after attempting to arrange an inspection by agreement facilities to inspect are refused or frustrated the facts should be reported to SVT Policy & Professional within 5 working days of the refusal or the second failed appointment. The case file should also be forwarded with a memorandum giving an estimate of the valuation required, based on an inspection without entry on to the property. HMRC should be advised, by either telephone or email, of the action taken.
SVT Policy & Professional will then advise the caseworker how to proceed.
6.54 Enquiries addressed to present occupier
Where the caseworker considers it necessary to make any enquiries of the tenant or the purchaser of a property which has been sold they should first confirm through the taxpayer or agent that there is no objection to such an approach being made.
6.55 ‘As returned’ cases
If on the basis of available information, or after obtaining further information from the taxpayer, the caseworker is able to accept the value put forward by the taxpayer then, providing there is no requirement to agree the value with any third party (see para 6.62 et seq), the case should be reported ‘as returned’. The report should be issued to HMRC within 30 working days of receipt of the case or within 20 working days of receipt of the information.
Where the caseworker eventually accepts the taxpayer’s returned valuation following a period of negotiation, they should include in their ‘as returned’ report a brief explanation of the reasons for the movement from the ‘not negotiated’ opinion of value. This is particularly important if the negotiations are protracted and the original valuation difference substantial, as this may give HMRC a poor impression of the quality of our initial valuation if no explanation is provided.
In instances following information received and/or negotiations with the parties, the caseworker revises their opinion and accepts that put forward by the parties, the case credit should NOT be converted to 01 but remain at 02 or 03, as appropriate.
6.56 ‘As returned’ cases involving other interested parties
Where the caseworker is able to accept the value returned by the taxpayer, but an “interested person” (see paras 6.62 et seq) has refused to agree, HMRC should be informed of the circumstances, the interested party notified of the action taken and the case treated as reported. HMRC will attempt to obtain agreement, and if unsuccessful, the case will be referred back to the VOA for negotiation with the interested party.
6.57 Negotiations and time limits
Where the caseworker is unable to accept the value returned the taxpayer should be advised of the caseworker’s opinion of value on form VO 1161. The form should be issued within 30 working days of receipt of the case or within 20 working days of receipt of information from the taxpayer. Reminders should be issued to the taxpayer at 20 working day intervals. In cases where the taxpayer is an individual (rather than a company) the caseworker may, in appropriate cases, include a warning in any reminder letters that “interest may have to be paid on any capital gains tax arising as a result of these enquiries”. (It should be noted that an interest charge will not always arise, for instance, because the date from which interest runs may not have passed or because a relief is being claimed. As the reasons are more numerous for companies it is not considered appropriate to use such a warning in any cases where the taxpayer is a company).
In cases where the caseworker significantly changes their opinion of value during the course of negotiations, HMRC should be advised of the revised figure(s) by means of a progress report or telephone call, so that HMRC has an opportunity to review the case. The caseworker should not delay negotiations with the taxpayer while waiting for a reply from HMRC.
In complex cases where an initial ‘not negotiated’ reference has been converted to an ‘agreed’ case and all the essential information has been obtained, the caseworker should normally report their opinion of value to HMRC and ask for confirmation whether HMRC would like the VOA to commence negotiations with the taxpayer. The taxpayer should be advised of the caseworker’s opinion of value and that this has been reported to HMRC with the request that HMRC confirm that it is appropriate for the VOA to enter into negotiations. The case should have an 02 case credit type. This may not be practical in all instances where the complexities are such that preliminary exploration of the facts naturally extends to a dialogue of valuation aspects. In this circumstance negotiations should continue, but HMRC should be advised of the caseworker’s opinion, once it has become clearly defined.
Every effort should be made to report the case within 100 working days of receipt or as soon as possible thereafter.
6.58 Liaison with HMRC
The caseworker should normally issue a progress report to HMRC at 3 months from receipt of the case. Detailed progress reports should be issued in all cases not reported after 6 months, detailing the state of the negotiations and the values contended for by the VOA and the parties, and at two monthly intervals thereafter until the case is reported.
In addition to the formal progress reports caseworker’s are encouraged to maintain informal contact with HMRC. When cases are proving difficult to settle a discussion with HMRC may produce a solution.
The VOA caseworker should keep HMRC informed of the progress of negotiations (both before and after any unagreed report has been issued) and regularly review the way forward with them having regard to the tax at stake and any wider points of principle or precedent which may be involved. If there are no points of principle or precedent involved and it is agreed with HMRC that, having regard to the amount of tax at stake, it is not worth pursuing negotiations any further then HMRC should be requested to settle the case on tax grounds, without prejudice to the valuation of the property. In such circumstances caseworkers should report their final valuation to HMRC as ‘unagreed’ with a note to the effect that it is understood that HMRC will consider whether the tax at stake justifies litigation.
It must be stressed that it is ultimately not the caseworker’s responsibility to decide whether the tax at stake in any particular case is or is not worthy of pursuit. If the caseworker considers that the case is not worthy of pursuit the reasons (eg. because of weaknesses in the available evidence or doubts about the facts) should be discussed with HMRC and the best way forward agreed. The role of the caseworker is to advise on the strength of the valuation aspects whereas HMRC will advise whether the tax is, in the circumstances of the case, considered worthy of pursuit.
6.59 “Without prejudice” offers
The practice of making any offer during negotiations and not adhering to it later is considered undesirable. The VOA caseworker must not therefore make “without prejudice” offers, but should seek to determine the correct figure. This figure should be put to the taxpayer unconditionally and subject to any later discovery of material facts it will have to be spoken to on any appeal.
6.60 No agreement possible
If it is not possible to reach agreement on a valuation, the caseworker’s unagreed opinion of value should be reviewed by the sector leader before reporting to HMRC in accordance with the instructions in Part 5 of this Section.
The report should normally be either on form VO 1171 endorsed ‘as returned’ or ‘agreed’ or in ‘unagreed’ cases (see Part 5 of this Section) on form VO 1172 as appropriate.
6.62 Right to be party to an appeal
By Regulation 8 of the regulations made under the Finance Act 1965 (SI 1967/149) any person whose liability to CGT for any period may be affected by the market value of an asset on a particular date, or the manner in which any value is apportioned, may apply to be joined in an appeal as a “third party”.
If an application concerns the value of any land or lease of land the First-tier Tribunal will, in the event of a dispute as to value, refer it to the Lands Chamber. As soon as a caseworker becomes aware that such an application under Regulation 9 involving the value of landed property has been made, a report should be sent to SVT Policy & Professional and instructions awaited.
6.63 Identification and negotiations
HMRC will state on Form CG 20 the names and addresses of such interested persons as are known. The values in which such persons are interested should be negotiated with them. If the caseworker is aware or becomes aware during negotiations of any such person(s) whose name is not shown on Form CG 20, HMRC should be informed, and then if so instructed such person(s) should be included as an interested party and the appropriate value(s) negotiated with them.
Disclosure of comparable information
6.65 General policy
Within the constraints imposed upon us by the need to safeguard the confidentiality of taxpayer information, the VOA’s general policy is to be as open and as helpful as possible. Whenever possible caseworkers should reveal full information about the evidence on which their valuations are based.
6.66 Information which may be disclosed
Guidance on the information about comparable transactions which caseworkers may disclose to a taxpayer (or their agent), when endeavouring to negotiate an agreed valuation or apportionment in a Revenue case, is contained in Practice Note 4.
Culpability and Penalties
It is important to be aware that HMRC has the power to impose penalties for various acts or omissions by taxpayers that might prevent the collection of tax properly due.
Where the error or omission occurred on or before 31 March 2009, Section 95, Taxes Management Act 1970 (as amended), authorises HMRC to seek penalties in respect of incorrect returns or accounts for income or capital gains tax where a person acts fraudulently or negligently. Neither term is defined in the legislation but from case law, for these purposes negligence can be broadly taken as “want of care and attention” or “failure to do what a reasonable man would”.
From 1 April 2009 onwards penalties are chargeable under Schedule 24 Finance Act 2007 where there is a loss of tax due to an inaccuracy in a return, statement, declaration or accounts which has been caused by a person’s behaviour being careless, deliberate or deliberate and concealed. These behaviours are defined in Paragraph 3 of Schedule 24 Finance Act 2007.
6.68 Guidance and examples
It is accepted that there may often be a range of valuations and agreeing a figure different from that returned does not automatically mean that a valuation is incorrect. Some valuations will be more speculative than others (e.g. those with ‘hope’ of development value) and will inevitably have a broad margin for error. Sometimes incorrect valuations may arise as a result of innocent error and the legislation takes these cases outside of the penalty remit.
However, there are other instances when the taxpayer’s actions may render them liable to a penalty. Some examples of when a taxpayer may be regarded as culpable are listed below but this list is not exhaustive.
- giving incorrect instructions to a professional valuer (eg. the valuer is instructed to ignore ‘hope value’)
- incorrectly identifying the asset to be valued
- using a vacant possession value when the property was tenanted
- valuing subject to a sitting tenant or other restriction when that is not the case
- basing a valuation on incorrect floor areas or land areas
- using incorrect trading figures when the valuation is based on the profits method
- returning a valuation inconsistent with a valuation used for another purpose or other taxable occasion
- agreeing a significant valuation change from an unrealistic returned valuation that cannot be explained adequately by difference of opinion
Some of the actions above may not have been deliberate but they may suggest a “failure to take reasonable care”.
Caseworkers should be proactive in identifying cases where the taxpayer may be culpable and bring details to the attention of HMRC. Contact should be made with HMRC at an early stage and caseworkers should not wait for negotiations to be concluded. It is recommended that caseworkers initially discuss the circumstances with HMRC and then, if required, provide details in writing. Under no circumstances should caseworkers approach taxpayers or their representatives on this point.
For the period prior to 1 April 2009, HMRC’s internal guidance on penalties can be found in their Enquiries Manual at EM4500+. Guidance on culpability can be found at EM5101+ with an explanation of ‘fraud’ at EM5105 - 5106 and ‘negligence’ at EM5125.
For the period from 1 April 2009 onwards, guidance can be found in the Compliance Handbook from CH80000+. In particular there are definitions of the different behaviours: careless CH81140+, deliberate CH81150+, deliberate and concealed CH81160+.
In cases of doubt or where the case is particularly sensitive, difficult, protracted and/or there is a likelihood of complaint, advice should be sought from SVT Policy & Professional.
Part 5: Unagreed/Defendable on appeal procedures
6.72 Unagreed valuations
Issuing an ‘unagreed report’ to HMRC is the first step in a series of procedures which may culminate in a Tribunal hearing.
Before reporting an ‘unagreed’ valuation to HMRC the case must be thoroughly reviewed to ensure that any assumptions made are confirmed by the facts, that the supporting evidence is relevant and therefore the valuation is prima facie defendable.
6.73 Statutory provision for appeals
Where the dispute concerns the value of any land in relation to chargeable gains an appeal shall be determined by the Upper Tribunal if the relevant land is in England & Wales and by the Lands Tribunal for Scotland for land in Scotland (S.46D Taxes Management Act 1970).
All functions in relation to appeals “on questions of the value of land or interests in land arising in tax proceedings” are now allocated to the Lands Chamber in accordance with SI 2009 no 1021 [The First-tier Tribunal and Upper Tribunal (Chambers) (Amendment No. 2) Order 2009]. This is wider than the TMA 1970 provisions and includes appeals against land valuation disputes arising in income tax, corporation tax and VAT cases.
The first step is for HMRC to issue an appealable decision and for the taxpayer to appeal. The taxpayer may then at any time notify the appeal to the Tribunal; should this happen the matter must be referred at once to SVT Policy & Professional for instructions.
If a case involves a dispute not concerning the value of land (for instance there may be a disagreement as to the nature of the interest to be valued) then a preliminary reference may be made to the First-tier Tribunal to determine these issues.
Procedure before reporting an unagreed valuation
6.74 Monitoring outstanding cases
Unless they have already been identified at an earlier time as being incapable of agreement all cases should be reviewed by the caseworker when they have been in the office for 80 working days.
Any necessary action to ensure that negotiations are brought to a conclusion should be taken at an early stage so that cases may be reported within the service level agreement target of 100 days or as soon as possible thereafter.
6.75 Review of case
As soon as it becomes clear that agreement is not possible consideration should be given to reporting ‘unagreed’. An unagreed report should only be issued when negotiations have genuinely reached deadlock or if the other side is not responding.
Before reporting an unagreed valuation to HMRC the case should be thoroughly reviewed by the sector leader to ensure that:-
- There is no prospect of agreement, negotiations have been exhausted and all correspondence has been answered.
- That an internal inspection has been undertaken of the subject property where possible and appropriate having regard to the circumstances together with external inspections of all comparables.
- On the basis of the computation attached to the CG20 there would appear to be tax at stake on the difference between the contested valuations (i.e. the case does not fall within para 6.79(1) below). Where there is doubt as to the effect of the disputed valuation on the tax at stake the case should be discussed informally with HMRC who should be given details of the valuations in dispute. There will be occasions where tax may not immediately be at stake but HMRC nonetheless require an agreed valuation for example to control capital losses that may have a wider impact on group profits, or tax in the future. (If it is absolutely clear there is no tax at stake, and HMRC are not seeking agreed values for other (eg loss reducing) reasons, then the case should be reported ‘Unagreed’ immediately without undertaking a detailed review of the valuation and supporting evidence.)
- The approach to the valuation is correct in principle and law.
- Subject to any disclosure consents being forthcoming, the available evidence adequately supports the opinion of value and any known evidence which could discredit the valuation is sufficiently outweighed by favourable evidence.
- If the valuation is largely or wholly unsupported because the evidence is scanty or non-existent the opinion of value is logical and reasonable having regard to all the circumstances.
- If factual information is in doubt, or has not been made available, the assumptions behind the valuation are reasonable. If in the event of those assumptions proving to be incorrect there would be a substantial variation in the opinion of value the report to HMRC must make those assumptions clear and request HMRC to advise the taxpayer accordingly.
- Consideration should be given to whether the case would benefit from ‘Alternative Dispute Resolution’.
6.76 Report to HMRC
The unagreed opinion of value should be issued direct to the HMRC caseworker on a Form VO 1172 endorsed “Unagreed”.
The report should state:-
- The reason why the valuation is unagreed (eg. whether due to a difference of opinion, information not provided or the parties failure to respond)
- The parties latest valuation
- Any information still required
- Any assumptions made
- Whether it is considered that there is a point of principle in dispute
- Comments on the strength of the case with, if appropriate, an indication of a range of values (ie. what is acceptable on the available evidence relative to what is the considered market value)
- If case is considered suitable for ‘Alternative Dispute Resolution’, make a reasoned recommendation to this effect (guidance can be found from HMRC’s Internet pages)
This information will assist HMRC in coming to a judgement as to whether, in light of potential tax implications, the case is worthy of further pursuit.
6.77 Case closure
When reporting on an ‘unagreed’ basis the case should be closed by the caseworker on CRAC.
It should be re-opened (credit type 03) when HMRC either requests the VOA caseworker to attempt further negotiations or sends the VOA a copy of a ‘Tribunal warning letter’ in accordance paragraph 6.79 below.
6.78 Informing the Taxpayer
At the same time as the unagreed report is issued to HMRC a letter should be sent to the taxpayer, or agent, incorporating the following information:-
a. The taxpayer’s latest valuation
b. The valuation being reported to HMRC
c. A brief note of the basis and any assumptions made
No mention should be made at this stage that the case may become the subject of litigation as this is ultimately a decision to be made by HMRC.
Procedure After Reporting an Unagreed Valuation
6.79 Action by HMRC on Receipt of an Unagreed Report
The action taken by HMRC following receipt of an unagreed report will depend on the effect the valuation reported has on the tax liability:-
1) If there is no possible tax effect because:
a. both the taxpayer’s and the VOA’s valuations would give rise to a gain below the annual exempt amount for that year (and no other gains or losses accrue to the taxpayer in the same year), or
b. both valuations give rise to losses for a company which has subsequently been wound up and the losses will never be used.
then no further action will be required. In these cases HMRC will accept the returned gain without prejudice to the valuation and advise the VOA accordingly.
2) If there is tax currently at stake HMRC will write to the taxpayer and advise them that unless an agreement is reached it will be necessary to consider a reference to the Tribunal. A copy of this Tribunal warning letter will be sent to the VOA.
6.80 Further negotiations
On receipt of a copy of HMRC’s Tribunal warning letter the case should be reopened (credit type 03) and the caseworker should write to the taxpayer or agent to enquire whether they wish to discuss the matter further before steps are taken to prepare the case for reference to the Tribunal. In any case where the failure to reach agreement is partly due to an inability to disclose evidence from confidential records the caseworker may also at this stage seek consent to disclose the evidence - See available guidance regarding disclosure. The letters in Appendices 35 & 36 suitably adapted are a guide. (Obtaining consents will not normally be required in Scotland).
If negotiations are resumed HMRC should be advised and the caseworker should endeavour to bring the further negotiations to a conclusion as soon as possible. HMRC should be kept informed of progress throughout any further negotiations at 20 working day intervals.
If agreement can be reached on the valuation the case should be reported with a credit type for a negotiated valuation.
If the caseworker is not able to reach an agreement HMRC should be advised appropriately including the caseworker’s latest unagreed valuation. If the taxpayer does not respond to the invitation to negotiate within 8 weeks of HMRC’s Tribunal warning letter the caseworker should advise HMRC accordingly. The case should be kept open at this stage but if no further instructions have been received within 60 working days of having been reopened then the case should be closed.
6.81 Request for a DOA report
If, following any further negotiations under paragraph 6.80, the valuation remains unagreed HMRC will review the case to ensure that a reference to the Tribunal is appropriate and request a Defendable on Appeal Report (DOA Report). HMRC will in every case advise the VOA caseworker of the amount of tax at stake on the valuation dispute.
In cases which involve particular difficulties or points of principle the request for a DOA Report may occasionally be routed via SVT Policy & Professional.
The purpose of the DOA Report is to provide the HMRC Solicitor with full details of the valuation dispute and a reasoned statement of the strengths and weaknesses of the case.
The DOA Report should comprise both a VO 1009 Case Summary and a full side-headed Appeal Report (see Appendices 7, 8 and 9.
6.82 Action on receipt of request for a DOA report
The action to be taken on receipt of a request for a DOA report will depend on the amount of tax at stake in the dispute:-
i. The tax at stake on the valuation dispute is less than £5,000.
The VOA caseworker should consider whether the circumstances of the case justify the costs involved in a reference to the Tribunal. If there is an important point of principle involved, or if the taxpayer’s valuation is wholly unreasonable and without foundation, then the caseworker should proceed with preparation of a DOA Report, as in (ii) below. If not, then the VOA caseworker should advise HMRC that in view of the small amount of tax at stake it is considered that the cost of preparing the case for a Tribunal hearing is not justified. HMRC should be requested to settle the matter on the basis of the taxpayer’s figure without prejudice to the valuation dispute. The caseworker should then report the case with a credit type for a negotiated valuation. (It should be noted that if the valuation affects the tax liability of more than one taxpayer it is the total tax at stake which should be considered)
ii. The tax at stake on the valuation dispute is £5,000 or over.
Shaded text in box is for internal use only and is not in the public version.
The VOA caseworker should:-
a. Prepare a DOA report and attachments in EDRM for approval by the sector leader, who should sign electronically the report, make any comments and alert the appropriate Technical Adviser, SVT Policy & Professional to it. [In legacy hardcopy cases the paper documentation and file(s) should be sent.] This should be completed within 20 working days of receipt of HMRC’s request. b. If needed, take steps to obtain consents to the disclosure of the comparables on which the valuation is based using the letters in Appendices 35 & 36 adapted as appropriate, as well as obtaining any other documentary evidence (for example, auction particulars, planning consents or policy documents) required to prove a case before the Tribunal.
The reason for seeking disclosure consents at this stage is to avoid the need to seek an extension of time for filing expert witness reports should the appeal be notified by the taxpayer to the Tribunal with no advance warning having been given to the VOA. The issue of the DOA Report must not, however, be delayed pending receipt of any consents or other documentation. (Obtaining consents will not normally be required in Scotland).
6.83 Action by technical adviser (TA) on receipt of DOA report
The role of the TA is to satisfy themselves that on the information provided an objective review of the case confirms that prima facie the valuations are supportable and the case should proceed to determination. As part of the review the TA may wish to inspect the property or suggest further research before the report is approved and forwarded.
The TA should within 8 weeks of HMRC’s request:
forward the DOA Report to the HMRC caseworker with any comments and
provide the sector leader and VOA caseworker with a copy of the TA’s comments to HMRC. [In legacy hardcopy cases, the file(s) will be returned to the VOA caseworker]
6.84 Change case type
When a DOA report has been approved by the SVT Technical Adviser and issued to HMRC, the caseworker should ensure that the case is closed and re-opened as a ‘litigation’ case type 186 with credit type of 02.
6.85 Reference to the tribunal
On receipt of the DOA Report HMRC will refer the papers to their CG Technical Group, who will review the case and may discuss the way forward with SVT Policy & Professional. If appropriate, they may advise the HMRC caseworker to close the enquiry but before doing so to write to the taxpayer to set out the current position and say that the VOA are ready to resume negotiations. They will allow a month for a response and may approach VOA to find out whether there has been any further contact. If meaningful negotiations have not been resumed HMRC will close the enquiry. This may result in an appeal by the taxpayer who can then notify their appeal to the Tribunal at any time.
From this point the procedures in Part 6 of this Section should be followed.
6. 86 Reference to the tribunal by the taxpayer
If it is discovered that the taxpayer or agent has made a reference to the Tribunal, SVT Policy & Professional should be notified immediately.
Part 6: Tribunal appeal cases
6.90 Relevant tribunals
In 2009 a new tribunal structure was set up within HM Courts and Tribunal Service comprising the First-Tier Tribunal and the Upper Tribunal. The First-Tier Tribunal comprises six chambers one of which is the Tax Chamber. The Upper Tribunal comprises four chambers which include the Tax & Chancery Chamber and, in England & Wales, the Lands Chamber. This new tribunal structure replaces the General and Special Commissioners.
The Upper Tribunal (Lands Chamber) (UTLC) is the successor to the Lands Tribunal in England & Wales. New UTLC rules and practice directions were issued in 2010.
Appeals on questions of the value of land or interests in land arising in tax proceedings (amongst other valuation appeals) are allocated to the UTLC in England & Wales or to the Lands Tribunal for Scotland (LT Scotland), either under statute (e.g. Taxes Management Act 1970), or by the First-Tier Tribunal. Other tax appeals which don’t involve the value of land such as CGT Private Residence Relief permitted area cases are allocated to the Tax Chamber of the First-Tier Tribunal.
The UTLC operates under its Rules and Practice Directions which provide for a number of different procedures including standard, simplified, special and written representations. These are important from a costs perspective. This and other procedural matters applicable to the Upper Tribunal (Lands Chamber) are expanded on in Appendix 40 of this manual. The LT Scotland has its own Rules and regulates its own procedures. For most purposes, the procedure to be adopted by a caseworker in preparing for a hearing is similar. Where a different approach is required, this is indicated.
6.91 Appeals, reviews and referrals to the tribunal
If a taxpayer disagrees with a direct tax decision by HMRC they have 30 days from the date of the decision to appeal to HMRC against the decision. Once they have sent an appeal to HMRC the taxpayer may:
- seek further discussion to try to resolve the matter
- request a formal ‘review’ by an HMRC officer who has not previously been involved with the decision they are appealing against or
- notify the appeal to the Tribunal at any time other than during a formal review
After an appeal has been made, HMRC may offer the taxpayer a formal review. In this circumstance, the taxpayer has 30 days to accept the offer or to notify the appeal to the Tribunal. If the customer does neither the appeal is treated as settled by agreement.
Once requested, HMRC must carry out the review within 45 days unless a different period is agreed. During this period of time the taxpayer may not notify the appeal to the Tribunal although they can do so after expiry where the review has not concluded in time.
If the review officer makes any request to the VOA for information or assistance, this must be complied with expeditiously because of the 45 day review period timescale.
It is outside the remit of a review to decide questions of the value of land or interests in land.
Following a review, if the taxpayer does not agree with the review officer’s findings the taxpayer will have 30 days to notify the appeal to the Tribunal. If the taxpayer does nothing then the reviewer’s decision is final.
HMRC cannot make a referral to the Tribunal themselves. If HMRC wishes to see the dispute referred to the Tribunal they must offer the taxpayer a review which will then start the process.
6.92 Action prior to tribunal reference
Following formal submission of a ‘defendable on appeal’ (DOA) report the VOA caseworker should maintain contact with the HMRC caseworker to ensure awareness of the formal appeal stage reached within the process outlined above. The taxpayer can notify the appeal to the Tribunal at any stage following a formal HMRC decision. If the taxpayer has requested a review, this will start the clock ticking towards a potential referral to the Tribunal. Once a case has been referred to the Tribunal it is usual for the Tribunal to request submission of expert witness reports from the parties within a 2 month period. It is therefore helpful for the caseworker to be prepared for this possibility.
Prior to submission of a DOA report the valuation and supporting evidence should have been thoroughly considered. Nevertheless, where the appeal is at imminent risk of referral to the Tribunal the caseworker should seek the necessary documentation needed to prove comparable transaction evidence at a Tribunal. Similarly the caseworker should ensure that they have sufficient planning documentation if relevant to their valuation and analysis of the comparables.
When HMRC’s CGT Technical Group considers the DOA report they may decide that the case is suitable to proceed to litigation if required. They may instruct their HMRC caseworker to make an appealable decision or if that stage has already been reached, in consultation with SVT Policy & Professional, offer a review. This will in effect start the clock ticking towards a possible tribunal reference. In some circumstances, where litigation appears highly likely, SVT Policy & Professional may ask the VOA caseworker to commence preparation of their expert witness statement and exhibits in advance of any formal notification to the tribunal. This will give the caseworker more time to prepare their case.
6.93 Reference to the tribunal by the taxpayer
It is only the taxpayer who can refer appeals to the Tribunal whether the First-Tier Tribunal UTLC or LT Scotland and the taxpayer will therefore be the appellant, not HMRC. If the principle dispute between the parties is the value of a piece of land, the Tribunal will allocate the dispute to the UTLC or the LT Scotland
If the caseworker hears directly from HMRC or the taxpayer that a reference to the Tribunal has been made SVT Policy & Professional should be informed immediately.
6.94 Instructions to prepare a case for tribunal
On being advised of a referral to the Tribunal, SVT Policy & Professional will liaise with the caseworker and sector leader. They may call for the file.
It is necessary for SVT Policy & Professional to formally give a caseworker authority to act as expert witness at a contentious hearing prior to the valuer preparing their case. Whilst it is usual for the caseworker who brought the case to DOA stage to continue with it to Tribunal it is not always appropriate.
SVT Policy & Professional will request the expert witness to commence preparation of the case for a hearing and they may arrange a preliminary case conference to clarify matters to be included in the report.
It is also necessary for HMRC, after consultation with SVT Policy & Professional to formally request the caseworker to prepare their case for a hearing; setting out their instructions of what they are asking of the expert witness. This letter of instruction may be included as an exhibit at the hearing. Guidance on the action required before receipt of formal instructions and the response to HMRC’s instruction letter is set out in paragraphs 6.95 - 6.97.
6.95 Action by the expert witness
On receipt of the request from SVT Policy & Professional to commence preparation of the case the expert witness should:
1) Seek formal instructions from the HMRC client and respond to these – see para. 6.97 below.
2) Commence preparation of draft expert witness report and exhibits – see para. 6.100 below and Appendix 42.
3) Obtain any source documentation to
prove transaction evidence for comparables including disclosure consents in the unusual circumstance of this being needed (see Practice Note 4)
prove planning or other factual matters in relation to the subject property and comparables.
4) Begin to keep a diary of the time spent and any costs incurred in preparing the case – see para. 6.101 below.
5) Commence preparation of a draft Statement of Facts for agreement - see para 6.102 below.
Within 6 weeks forward a copy of the draft expert witness report and the draft Statement of Facts to SVT Policy & Professional.
6.96 RICS practice statement and guidance
The RICS has a Practice Statement and Guidance Note ‘Surveyors acting as expert witnesses (3rd edition)’ supplemented by ‘Surveyors acting as expert witnesses - briefing and addendum 2009’, available on the RICS website. Compliance with a Practice Statement is compulsory for RICS members and caseworkers should familiarise themselves with these documents.
6.97 Response to expert witness request
On being approached to act as expert witness, it is necessary for the VOA caseworker to:
ask HMRC if they will put their instructions for you to act as expert witness in writing
send the HMRC caseworker a ‘client copy’ of the RICS Practice Statement
advise that the RICS Practice Statement and, where appropriate, the Civil Procedure Rules (in E & W), or other rules (such as LT Scotland), will apply
advise that the primary duty of the expert witness in giving evidence is to the Tribunal
ask the HMRC caseworker if they will confirm in writing the matters on which expert evidence is required
Once the caseworker has received HMRC’s written confirmation of instructions, the VOA caseworker should write back as per the Practice Statement to:
confirm acceptance of HMRC’s instructions
set out your understanding of the matters on which expert evidence is required
confirm that no part of this assignment is likely to be carried out by any other person than yourself
confirm that you are satisfied no conflict of interest arises [state any previous involvement in the matter by you and/or the VOA and any other matters relevant to the property]
state that all other matters regarding terms of engagement, fees, etc are set out in the service level agreement between HMRC and the VOA
SVT Policy & Professional can provide a typical letter if required.
The caseworker must ensure that all documents relevant to the instructions are kept as a proper record of their instructions.
Guidance on UTLC and LT Scotland procedures is contained in Appendix 40.
Guidance on the preparation of an expert witness statement, other exhibits and also the ‘notes for guidance of advocate’ are contained in Appendices 41 and 42.
Guidance on procedures before the First-Tier Tribunal is contained in Appendix 37.
6.98 Representation and responsibilities
HMRC will decide in conjunction with their Solicitor whether the Solicitor’s Office will represent HMRC or whether the case is suitable for representation by an officer from HMRC’s Appeal Unit. Where the UTLC’s standard procedure is adopted it is expected that HMRC will be represented by either their Solicitor, or Counsel. In referrals to the First-Tier Tribunal, HMRC will usually be represented by an officer from their Appeal Unit.
If the case concerns land in Scotland, and is to be heard in the LT Scotland, the case will be referred by HMRC to the HMRC division of the Office of the Advocate General (OAG) for Scotland which represents HMRC in Scottish cases. One of its lawyers will have conduct of the case, instructing Counsel as appropriate.
The VOA provides the expert witness who will be a professionally qualified caseworker authorised by SVT Policy & Professional to act. Although the responsibility for the valuation rests with the caseworker, SVT Policy & Professional will assume responsibility for the management of the case and will act as co-ordinator.
SVT Policy & Professional will ask the caseworker to commence preparation of their case for a Tribunal hearing in accordance with the procedures in this Part as soon as they become aware of the reference to Tribunal or at an earlier stage in the appeal process if it is thought prudent to do so.
At a very early stage it is important to consider whether the case might be suitable to be heard by the Tribunal’s simplified procedure or written representations. If so this should be discussed with SVT Policy & Professional so that they can make recommendations to HMRC’s Solicitor and HMRC’s CG Technical Group.
6.99 Liaison with HMRC’s solicitor or the appeals unit
It is essential that the expert witness keeps the HMRC Solicitor or OAG Solicitor or the Appeal Unit officer informed of all relevant matters throughout the preparation of the case. Normally this should be done via SVT Policy & Professional but the expert witness and Solicitor may contact one another directly, providing SVT Policy & Professional is kept in the picture. The Solicitor will offer guidance, as necessary, on any contact with the other parties and, particularly, their legal advisers.
6.100 Expert witness report
The expert witness report (formerly known, in E & W, as a Proof of Evidence) and exhibit bundle is the cornerstone of the case and it is essential that it is carefully considered and thoroughly prepared. Guidance on the preparation of an expert witness report and exhibits is contained in Appendices 41 & 42 but advice may be obtained from SVT Policy & Professional at any stage.
6.101 Diary of time spent
On receipt of advice that a reference has been made to the Tribunal or, if earlier, that HMRC’s Solicitor has been instructed, the expert witness must start recording a diary of all time spent by all staff on the preparation of the case and any other costs incurred - see para 6.95. This is additional to the normal time recording procedure.
In most cases being referred to the First-Tier Tribunal a diary of time is not normally required. The only exception is when there is likely to be an argument that a party or their representative has acted unreasonably in bringing, defending or conducting the proceedings.
6.102 Statement of agreed facts
The UTLC’s Practice Direction states:
Where more than one party is intending to call expert evidence in the same field, the experts must take steps before preparing or exchanging their reports to agree all matters of fact relevant to their reports, including the facts relating to any comparable transaction on which they propose to rely, any differences of fact, and any plans, documents or photographs on which they intend to rely in their reports.
It goes on to say:
After the exchange of the experts’ reports, and again if rebuttal reports are exchanged, the experts of like discipline should usually meet and, where the Tribunal so directs must meet, in order to reach further agreement as to facts; to agree any relevant plans, photographs, etc; to identify the issues in the proceedings; and where possible, to reach agreement on an issue. The Tribunal may specify the issues which the experts must discuss. The Tribunal may also direct that following a discussion between the experts the parties must prepare a statement for the Tribunal showing those facts and issues on which the experts agree and those facts and issues on which they disagree and a summary of their reasons for disagreeing. The Tribunal will usually regard failure to co-operate in reaching agreement as to the facts and issues as incompatible with the expert’s duty to the Tribunal and may reflect this in any order on costs that it may make.
The contents of the discussions between the experts are not to be referred to at the hearing unless the parties agree. Where experts reach agreement on an issue during their discussions, the agreement will not bind the parties unless the parties expressly agree to be bound by the agreement.
The LT Scotland is likely to make similar orders or directions in its cases.
Preparation of a statement of the relevant facts will be the responsibility of the expert witness but no Statement of Agreed Facts should be put to the other parties without first obtaining the concurrence of HMRC’s Solicitor or the HMRC advocate, through SVT Policy & Professional. Similarly any proposed amendments suggested by the other parties must be discussed with HMRC’s Solicitor before they are accepted.
6.103 Contact with the taxpayer or agent
The expert witness may approach the taxpayer or agent to discuss agreement of facts, but this should not be allowed to delay preparation of the draft expert report. If the taxpayer or agent wishes to discuss the valuation further and it seems that a settlement may be possible then this should be conducted with care and ‘without prejudice’. This should not be allowed to delay preparation of the draft expert report being mindful of any date set by the Tribunal for filing and exchange of reports. If any further negotiations are taking place SVT Policy & Professional should be kept informed of the position.
6.104 Action by SVT policy & professional on receipt of draft documents
SVT Policy & Professional will review the draft documents and may suggest amendments, further action or research. If initially or on further review, the report is suitable the caseworker will be asked to forward a copy of the report and exhibits to HMRC’s Solicitor who in turn may also make suggestions for improvement or may request a case conference. This may or may not include Counsel at this stage.
6.105 Preparation of final documents
An amended report and set of exhibits should be sent to SVT Policy & Professional. Once finally approved by SVT Policy & Professional the expert witness should forward sufficient copies of the final signed documents to HMRC’s Solicitor by the agreed date. The expert witness should clarify with the solicitor the number of copies required.
6.106 Exchange of expert witness reports
At an early stage following referral to the Tribunal, the Tribunal’s Registrar will normally require that both parties file and serve their expert witness reports within typically a 2 month period. This action is done by HMRC’s Solicitor but the expert must ensure sufficient signed copies of their report and exhibit bundle are with the Solicitor in good time for compliance with the time limit. It is considered undesirable that HMRC Solicitor should seek extensions of time. Close liaison with the Solicitor should be maintained.
6.107 Taxpayer’s expert witness report
When the taxpayer’s expert witness report (if any) is received from the Tribunal’s Registrar, HMRC’s Solicitor will forward copies to the expert witness and SVT Policy & Professional.
Following receipt of the documents the expert witness should inspect (at least externally) all the properties which are quoted as comparables and make every effort to verify any factual information contained in the documents. If there are any discrepancies of a factual nature the expert witness should seek to resolve these with the parties by way of some reference in the statement of agreed facts.
Analysis of the taxpayer’s expert’s report and exhibits will be crucial to the identification of the strengths and weaknesses of the taxpayer’s case and detailed notes should be prepared for the benefit of HMRC’s Solicitor.
6.108 Rebuttal evidence and written questions to experts
If new evidence or opinion of which the VOA expert is unaware is included in the other party’s expert witness report then it may be necessary to respond to this by producing additional evidence and opinion to distinguish. This is called rebuttal evidence. Whether this action is appropriate should be considered in liaison with SVT Policy & Professional and HMRC’s Solicitor.
Another procedure that may be appropriate is to put written questions about the report of an expert instructed by another party. Normally such questions should be put once only; should be put within 1 month of service of the expert’s report; and should be only for the purposes of clarification of the report.
If the VOA expert wishes to put questions to the taxpayer’s expert this should be done via HMRC’s Solicitor and in liaison with SVT Policy & Professional. Similarly, if question(s) are asked of the VOA expert they should direct replies through HMRC’s Solicitor and in liaison with SVT Policy & Professional. Replies should be answered within 3 weeks unless the Tribunal order otherwise.
6.109 Notes for guidance of advocate
Following receipt of the taxpayer’s expert’s report and documentation the VOA expert witness should prepare ‘Notes for Guidance of Advocate’ (see Appendix 42) to assist HMRC’s Solicitor in presenting the case before the Tribunal and forward this to SVT Policy & Professional for review and discussion. Once approved, SVT Policy & Professional will forward a copy to HMRC’s Solicitor.
Guidance on what should be included in the Notes is contained in Appendix 42.
6.110 Use of “Without Prejudice” or “Calderbank” offers
In order to explore the possibility of disposing of the case prior to the hearing and to protect HMRC against costs, it may be considered that the making of a formal “without prejudice save as to costs” offer (sometimes known as a “Calderbank” offer in E & W) would be appropriate. Any such offer will always be made by HMRC’s Solicitor who will reserve the right, in the event of the offer not being accepted, to bring it to the notice of Tribunal on the issue of costs. HMRC’s Solicitor will always consult with HMRC Technical Group, SVT Policy & Professional and the expert witness before making any such offer. No reference to such an offer should be made at the hearing.
Should such an offer, or counter-offer, be made to the expert witness by the parties, this should be made known immediately to HMRC’s Solicitor and SVT Policy & Professional together with the views of the expert witness thereon. Pending instructions the parties should merely be advised that the matter is receiving consideration.
6.111 Preliminary hearing
On the application of any party to proceedings or on its own initiative the Tribunal may order any preliminary issue in the proceedings to be disposed of at a preliminary hearing. HMRC’s Solicitor may request the expert witness to attend. The expert witness will not be required to give expert evidence at this stage, but may be asked to advise the Solicitor during the hearing.
6.112 Notice of hearing
The Tribunal will ask HMRC’s Solicitor for details of dates on which the expert witness will not be available for a hearing. It is important that this information is supplied promptly on request and that the Solicitor (with copy to SVT Policy & Professional), are advised of any changes in availability.
6.113 Procedure at hearing
An account of procedure before the UTLC is provided in Appendix 40. Procedure before the First-Tier Tribunal is included at Appendix 37.
Whilst the LT Scotland has its own rules, the hearing will follow a format similar to that in England and Wales – Appellant presenting their evidence first, followed by HMRC.
6.114 Evidence on oath
When on oath, the expert witness must only testify as to facts which are either agreed, within personal knowledge or proven by documents before the Tribunal or by other admissible evidence.
In UTLC cases costs will be requested where appropriate by HMRC Solicitor when the decision is made known, but to allow HMRC Solicitor sufficient time to consider costs, the case diary (kept in accordance with para 6.101) should be forwarded to SVT Policy & Professional as soon as possible after the hearing. Similar considerations apply to expenses in the LT Scotland.
The decision will usually be forwarded to HMRC’s Solicitor with a request for written submissions on costs or expenses. Copies will be forwarded to the caseworker and SVT Policy & Professional.
The decision of the UTLC is final as to matters of fact or value. An appeal lies on a point of law only, direct to the Court of Appeal and then to the Supreme Court. The decision as to whether or not to pursue an appeal in respect of any case will be made by HMRC Technical Group in consultation with HMRC Solicitor and SVT Policy & Professional.
Applications may be made to the First-Tier Tribunal for their permission to appeal their decision to the Upper Tribunal.
Procedures in Scotland
6.118 Variations in Scotland
As indicated, the general principles and procedures set out above will apply to appeal casework in Scotland but there are differences in detail arising out of Scottish law and practice.
The statutory mechanism for appeal against an HMRC decision is the same in Scotland. However, disputes involving the valuation of land and property are referred to the Lands Tribunal for Scotland which is an independent civil court.
In Scotland an expert witness report may sometimes be referred to as a Precognition.
Costs are called “expenses”.
Exhibits are referred to as ‘productions’.
6.119 Exchange of documentation
The Lands Tribunal in Scotland has a wide discretion to regulate its procedure as it thinks fit. Normally after the parties have lodged their pleadings and a period of adjustment has been allowed, the Tribunal will issue an order “closing the Record” (i.e. declaring the pleadings to be in their final form), appointing the date for the hearing and ordering that documents be lodged. The practice is to send to the other side a copy of the list of comparables and a copy set of productions at the same time as these are lodged with the Tribunal rather than for the Tribunal to pass them on to the other party.
The Tribunal will usually ask for a list of comparable properties to be submitted before the hearing (28 days was used in a recent case). The documents and productions are usually required to be exchanged shortly before the hearing (14 days was used in a recent case). Precognitions are normally exchanged prior to the hearing although it may exceptionally be done by prior agreement between the parties, however, there is no certainty of this.
6.120 Statement of agreed facts
The Tribunal are likely to request that as many facts as possible are agreed between the parties beforehand and embodied in a Joint Minute of Admissions. In particular where both parties’ lists of comparables include some identical properties but reveal factual differences they will expect these to be resolved prior to the hearing.
With regard to facts or legal issues, the Tribunal encourage production of an agreed statement setting out matters that have been agreed.
If necessary a Joint Minute of Admissions may be entered into by the parties but this would be done only a short time before the hearing via the Office of the Advocate General and in consultation with SVT Policy & Professional.
6.121 Action by expert witness
The expert witness should commence preparation of a precognition and productions as well as a diary of time spent and expenses incurred in preparing the case.
An appeal in Scotland is to the Inner House of the Court of Session and from there to the Supreme Court. Appeals are on points of law only.
Part 7 : miscellaneous requests
Post Transaction valuation checks (PTVC)
6.128 Interaction with self assessment procedures
It is essential that caseworkers are aware of the interaction of this work with the self assessment procedures that apply to taxpayers, whether individuals or companies (see para 6.2). Care must be taken to ensure that taxpayers who fail to meet their statutory obligations and thereby incur penalties cannot point to the VOA as the cause of that failure.
Individual taxpayers must file their returns either by 30 September after the end of the tax year (if they wish the Revenue to calculate their tax liability) or 31 January (if they wish to calculate the tax liability themselves).
Companies must generally file their tax returns with the Revenue on or before the later of:
a. 12 months from the end of the accounting period for which the return is made. b. 3 months from the date of a notice requiring them to deliver a return.
As a company’s accounting period is usually one year to a date of its own choosing their is no universal filing date for companies. Inspectors will therefore advise DVs of the final filing date in all PTVC cases.
6.129 Time limits
The standard of CGT time limits of 42 days for a ‘not negotiated’ (01) valuation and 6 months for an ‘agreed’ (02 or 03) valuation apply to PTVC cases.
The CG34 guidance notes encourage taxpayers to make request as soon as possible after the disposal and make it clear that in some complex cases it may not be possible to provide an alternative valuation before the filing date of the return.
If the following receipt of a request for a not negotiated valuation is clear that it will not be possible to report a valuation to the Inspector before the filing date (either because the taxpayer has made a late request or exceptionally the 42 day time limit cannot be met) the caseworker should advise the Inspector accordingly. The valuation should however still be considered and a report issued as soon as possible thereafter.
Inspectors will usually initially ask for a ‘not negotiated’ valuation in all cases. However, if in any case the initial request is for an agreed valuation and it is clear that it will not be possible to notify the taxpayer whether or not the returned valuation can be accepted before the filing date (either because the taxpayer has made a late request or exceptionally the 42 day time limit for notifying the taxpayer of the DV’s opinion of value cannot be met) the caseworker should advise the taxpayer accordingly. The valuation should however still be considered and the case progressed in the normal way as soon as possible thereafter.
If negotiations have been commenced (either following the receipt of a request for an greed 02 valuation or an 03 referred back case) and it is clear that agreement will not be reached before the filing date, the caseworker should advise the taxpayer and the Inspector accordingly and then continue with the negotiations in the normal way.
The PTVC service also applies to valuations of unquoted shares undertaken by SV. If SV require a valuation of the company’s property they will, in their reference to the DV, advise that the valuation is required in connection with a PTVC and indicate the date by which they require a report. If for any reason it is clear that it will not be possible to report a valuation before the date indicated then SV should be advised as soon as possible.
6.130 Case procedures
Apart from the additional actions required in the circumstances described in paragraphs 6.128 & 6.129 above, the normal CGT case procedures set out in this section (or Chapter 1B, section 16, for SV cases) should be followed. However, it should be noted that if it is necessary to enter into negotiations and it does not prove possible to reach agreement, the Inspector will be unable to take any action to have the matter referred to the Lands Tribunal until after the taxpayer has submitted their tax return.
6.131 Consideration of values returned
When initially considering any valuation returned by a taxpayer it is important that caseworkers do not strive to achieve small variations in valuation that would reasonably fall within acceptable tolerances.
If the caseworker is satisfied that on the basis of available information the returned figure falls within reasonable valuation tolerances then the taxpayer’s valuation should be accepted. What constitutes an acceptable valuation tolerance is a matter for the caseworker to judge depending on the circumstances of each case and the strength of the available evidence.
Land portfolio valuation unit
6.132 Taxable occasions
Where a company disposes of more than 30 properties in a tax year it may ask its Inspector of Taxes to admit them to a valuation scheme which has been running since 1991.
The LPVU considers the types of properties in the request and extracts a sample which is representative of those types. DV’s are asked to provide, and negotiate if necessary, the values of the properties sent to them.
Because the next stage, the extrapolation of individual values to the whole portfolio, cannot be undertaken until all the DV’s have reported, it is important that DV’s advise their opinions of value within the time limits given. This will help to avoid delays in settling cases and in consequence complaints from the taxpayers.
On first reference the DV should consider the returned value(s) and where these are outside a reasonable tolerance for the type of property concerned advise the LPVU of their opinion of value on a not negotiated basis. This opinion should be provided within the standard time scale of 42 calendar days (30 working days).
LPVU will review the portfolio in the light of the values provided and give the Inspector an indication of the possible change in value. Should the Inspector decide that the change is significant the LPVU will be asked to negotiate. At this stage the DV may be asked to agree values but, wherever possible, the LPVU will discuss the overall portfolio valuation with the taxpayer and may achieve a settlement without prejudice to the value of individual properties.
6.134 Registration procedures
The LPVU has its own registration procedures and charges separately for its services. DV’s are required to raise charges locally for any valuation requests that are referred to them by the LPVU.
Requests received from the LPVU which relate to taxable occasions are to be given case type 144 and credit type 01, 02 or 03 as appropriate. They will attract the standard flat rate fees when reported to LPVU.
Property portfolio valuations
6.135 1982 Portfolio valuations
To enter this scheme, which is being treated as a pilot for two years from March 2000 a company or group of companies must meet the following requirements:
a. it includes 30 or more properties held since 31 March 1982 or b. if fewer, the properties held since 31 March 1982 have a current value in excess of £30 million
Applications for the scheme must be accompanied by full information and 1982 valuations as set out in Appendix 20 which is a copy of a letter that the Inspector will issue to a company making a request for the service.
Requests received from the LPVU relating to this scheme are to be given case type 145 and credit type 01, 02 or 03 as appropriate. They will attract the standard flat-rate fees when reported to LPVU. There is no requirement to complete case costing data
6.136 Unagreed valuations
As there is no underlying transaction giving rise to a tax liability it is not possible to initiate any form of disagreement or appeal procedures. Cases will be managed by the LPVU but if it is clear that it may not be possible for the DV to reach agreement, the LPVU should be informed of the position and further instructions awaited. This action must be taken promptly as it is the responsibility of the Inspector to decide if the case should proceed and any delays will reflect adversely on our service.
Value Ascertained for IHT
6.137 Inspector’s procedure
S.274 TCGA 1992 provides that if IHT is chargeable on a person’s estate and the value of the property has been ‘ascertained’ then that value is to be taken as the market value as at the date of death for CGT purposes.
The Revenue consider that a value is only ascertained if the IR(CT) have used the valuation to arrive at a charge to IHT and the amount of the liability was dependent on valuation.
If the valuation returned on death does not affect the amount of any IHT (for example because 100% Agricultural Relief is applicable) then the value is not regarded as having been ascertained.
If a figure is reported by the taxpayer as being the IHT figure the Inspector will check with IR(CT) whether the value has been ‘ascertained’. If not, or if an apportionment of the ascertained figure is required, then the Inspector may seek the DV’s assistance.
6.138 Value not ascertained
If the value has not been ‘ascertained’ for IHT the Inspector will request the DV to provide a not negotiated valuation as at the date of death of the interest passing to the deceased’s personal representatives. The basis of valuation to be adopted is as set out in s.272 TCGA 1992.
6.139 Apportionment of ascertained value
If a value has been ascertained for IHT the Inspector may in some cases require the DV’s apportionment of that figure. This may arise where there is a part disposal and the taxpayer does not wish to apply the statutory part disposal formula or when separate assets have been grouped together for valuation purposes and a single value ascertained for IHT. See also 7.26 regarding the apportionment of value to undivided shares in this circumstance.
Requests for advice under 6.131 or 6.132 above should be dealt with in accordance with the normal case procedures set out in this Section.
Requests from Inspectors regarding development value
6.141 Form of references
Occasionally the chargeable gain on a disposal has to be computed under the rules that existed prior to rebasing (see Section 5). To decide whether a mandatory 1965 valuation is required in such cases, an Inspector may require advice on whether the consideration on disposal reflects ‘development value’.
A request for the DV’s opinion will be made in memorandum form.
6.142 Action by DV
The DV should make such enquiries and inspections as are necessary to enable a decision to be made on whether or not ‘development value’ has been realised in the transaction, and advise the Inspector accordingly.
6.143 Further information or inspection required
Should the DV require any further information this should be requested from the Inspector, within 14 days of receipt and the case cancelled.
If an internal inspection is considered essential, the DV should make arrangements with the new owner or the occupier but the Inspector should be advised so that he may inform the taxpayer. No information as to the reason for the valuation should be given to any person other than the taxpayer or an “interested person” (see pares 6.59-61).
6.144 Meaning of development value
“Development Value” (referred to in para 6.134 above) should be taken to be realised if the consideration exceeded the “Current Use Value” (CUV) of the property at the time of disposal:-
“CUV” is defined in para 10(2) of Schedule 2, TCGA 1992, as the market value, of the interest on the assumption that it was (and would continue to be) unlawful to carry out any “material development” other than any material development which had planning permission and had already been begun before the valuation date (but not if it was begun before 18 December 1973);
“Material development” is defined in para 13 of Schedule 2, TCGA 1992. The prospect of carrying out any non-material development should be reflected in the CUV only to the extent that the market would reflect the value of such prospect, having regard to either any actual planning permission in existence or if it were applied for the likelihood of planning permission being obtained;
Planning permission has the same meaning as in the Town and Country Planning Act 1990 (in Scotland, the Town and Country Planning (Scotland) Act 1972). In cases where an “outline” planning permission only has been granted the CUV will reflect only such development which has received detailed planning approval and has been commenced before the relevant time, the remaining development covered by the outline planning permission being disregarded. The CUV at any relevant time should exclude not only any value arising from the prospect of obtaining planning permission for material development but also any value arising from an actual grant of planning permission for material development where the development has not been commenced before the time of valuation and any value arising from the prospect of obtaining planning permission for material development.
Any difficulties in determining the CUV in any case should be referred to CEO.
6.145 Time limits
Cases referred under para 6.144 above should be reported within the normal time limits for not negotiated cases.
6.146 Mineralised land and licensed property
Where the transaction relates to land including minerals, or licensed property in London, the DV should consult the MV or the RLPV (London) as necessary before complying with a request under para 6.134 above.
Disposal on compulsory acquisition cases
Where a request for valuation advice is received in a case where the disposal or part disposal is to an authority possessing compulsory purchase powers and the compensation includes a payment for injurious affection, severance or disturbance (other than a contribution towards fees and legal costs etc) the DV should, in addition to complying with the valuation request provide:-
the date of Notice to Treat or contract for sale, the date on which the amount of compensation was agreed and the date of entry;
an apportionment of the total compensation between, as appropriate:
- the value of the interest
- severance and injurious affection
- temporary loss of profits
- damage to goodwill (ie. permanent loss of profits)
- loss on stock
- loss on plant
- the total of any other disturbance items
If this apportionment differs materially from one supplied by the taxpayer, the DV should give comments on the taxpayer’s apportionment and make it clear that no attempt has been made to reconcile the two sets of figures. If unable to provide an apportionment the DV should inform the Inspector accordingly.
6.148 Part disposals
Where the land being compulsorily acquired forms part of an asset, the normal part disposal rules will apply. The part of the compensation paid for injurious affection or severance is to be taken as the consideration for a part disposal of an interest in the injured or retained land. The Inspector should be invited to submit a separate Form CG20 in respect of each such item, if a valuation is required.
6.149 Special cases
All cases where it is proposed to raise a charge in respect of a discretionary payment or where the compensation for the land taken has been assessed under Rule 5, s.5, Land Compensation Act 1961 (in Scotland, s.12 Land Compensation (Scotland) Act 1963), should be referred to CEO.
6.150 On-licensed properties
Where on the acquisition of on-licensed premises a suspended licence is retained by the Brewers, the case is, in strictness, a part disposal, the value of the licence forming the “remainder”. However, where the value of a suspended licence is nominal only the sale of the premises to the Acquiring Authority will not usually be treated as a part disposal, and the case should be dealt with in accordance with the above paragraphs as may be appropriate. Normal part disposal rules apply where the value is substantial.