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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.
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.
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.
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’.
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.
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.
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:-
- The taxpayer’s latest valuation.
- The valuation being reported to HMRC.
- 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.
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.
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.
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.
- 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.
- 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).
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]
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.
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.
If it is discovered that the taxpayer or agent has made a reference to the Tribunal, SVT Policy & Professional should be notified immediately.