Capital Gains & Other Taxes Manual - Section 6 - Part 4 : Negotiation Cases

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6.48 When Required

6.49 Initial Consideration

Information Needed from the Taxpayer

6.50 Information to be sought from Taxpayer or Agent

6.51 No Reply to Request for Information

General Procedures

6.52 Contact with Taxpayer or Agent

6.53 Inspections and Confidentiality

a. Statutory Powers

b. Conduct of Inspection

c. Inspection Refused

6.54 Enquiries addressed to Present Occupier

6.55 'As Returned' Cases

6.56 'As Returned' Cases involving other Interested Parties

6.57 Negotiations and Time Limits

6.58 Liaison with HMRC

6.59 “Without Prejudice” Offers

6.60 No Agreement Possible

6.61 Reports

Interested Persons

6.62 Right to be Party to an Appeal

6.63 Identification and Negotiations

6.64 Reserved

Disclosure of Comparable Information

6.65 General Policy

6.66 Information Which May be Disclosed

Culpability and Penalties

6.67 Background

6.68 Guidance and examples

6.69 Procedure

6.70-71 Reserved

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):

1) following a ‘not negotiated’ valuation report when the taxpayer has requested an opportunity to negotiate;

2) when HMRC requests an ‘agreed’ valuation on first reference to the VOA;

3) 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

1) 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.

2) 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.

3) 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.

4) 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.

5) 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.

General Procedures

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.

6.61 Reports

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.

Interested Persons

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.

6.64 Reserved

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

6.67 Background

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”.

6.69 Procedure

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.

6.70-71 Reserved

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