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HMRC internal manual

Employment Income Manual

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HM Revenue & Customs
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Employment income: transfer of real property to employees: action following Valuation Office Agency's report

Section 62 ITEPA 2003

If the amount of the informal valuation provided by the Valuation Office Agency (VOA) (see EIM08002) exceeds the consideration paid, the Inspector should write to the employee advising him or her that the amount of the excess represents earnings taxable under Section 62 ITEPA 2003 for the year in which the land was transferred. Where there is no dispute about either the valuation or the treatment of the excess as earnings, the appropriate action should be taken to tax the excess over the amount paid as employment income.

If the position is disputed, there are some important steps to take before issuing an appealable decision in the form of an assessment or a Revenue amendment to a self assessment. This is because of the need to obtain a defendable on appeal valuation report as part of the preparation for any appeal hearing at which the property valuation is one of the issues under appeal.

The first step is to establish the employee’s grounds for disputing the position.

Employee agrees the valuation but disputes treatment of profit as earnings

This should be treated in the same way as any other dispute about how something should be dealt with under the employment income rules. If the valuation is agreed, there is no need for the VOA to provide a defendable on appeal report.

Employee disputes the valuation

The following guidance will apply in any case where the employee disputes the valuation, whether or not the employee accepts the underlying position about any profit being taxable as earnings from the employment.

If the valuation is disputed, the employee should be asked if he or she is employing a professional adviser to act on his or her behalf and he or she may be informed that arrangements will be made for the VOA to enter into formal negotiations with him or her or with that adviser. Any agreed valuation will be reported in due course by the VOA.

If agreement is not reached, the VOA will report that the position is unagreed, together with the reasons for the failure to reach agreement and the VOA’s opinion of the value. Before making an assessment, if it seems that no agreement on valuation is possible and that the matter will need to be resolved by formal means, ask the VOA to provide what is known as a “defendable on appeal” valuation report. When you have received a defendable on appeal valuation report, a formal decision should be issued as appropriate.

When submitting your request to the VOA, make it clear that you are requesting a report in connection with establishing liability as employment income. (This content has been withheld because of exemptions in the Freedom of Information Act 2000)  (This content has been withheld because of exemptions in the Freedom of Information Act 2000)

If the decision is appealed, note that jurisdiction for hearing of the appeal lies with the First-tier Tribunal and not to the Lands Tribunal. Although valuation of the land may be a major issue in the appeal, or perhaps the only issue if an employment income liability is agreed in principle, the subject of the appeal is a charge on employment income in the form of earnings or benefits. Jurisdiction for the determination of employment income liability rests with the First-tier Tribunal and there is no option for the taxpayer to ask the Lands Tribunal to consider the matter instead.