HMRC's Updated Guidance on Share Valuations

Overview of Recent Changes

HMRC has released updated guidance on share valuations for tax purposes, with particular implications for EMI schemes and other employee share arrangements. This article summarises the key changes and their practical impact.

What's Changed?

The updated guidance clarifies HMRC's expectations in several areas:

2. Documentation standards

3. Methodology selection criteria

4. Discount application guidance

Valuation Timing

The 90-Day Rule

For EMI, a valuation agreed with HMRC's Shares and Assets Valuation team is valid for 90 days from the date of the agreement, and options must be granted inside that window.

HMRC does not publish an equivalent fixed validity period for CSOP or SAYE. For those schemes, and for unapproved arrangements, the market value simply has to be defensible at the date of grant, so a valuation should be refreshed whenever it is no longer current.

Practical tip: If you're planning multiple EMI grant rounds, consider whether a single agreed valuation can cover all grants within the 90-day window.

Post-Transaction Updates

Where significant events occur between valuation and grant, HMRC expects the valuation to be updated. Significant events include:

Documentation Requirements

The guidance emphasises the importance of maintaining comprehensive documentation:

Required Documentation

Retention Period

All documentation should be retained for a minimum of 6 years following the relevant grant date, and longer if options remain unexercised.

Methodology Selection

HMRC's Preferred Approach

HMRC does not mandate a specific methodology but expects:

Common Methodologies Accepted

2. Discounted cash flow - For businesses with reliable forecasts

3. Net asset value - For property or asset-intensive businesses

4. Comparable transactions - Where sufficient market data exists

Discount Guidance

Minority Discounts

The guidance confirms that minority discounts remain appropriate but should be:

Typical Ranges

Action Points for Businesses

Immediate Steps

2. Check documentation - Verify retention of all supporting materials

3. Update policies - Incorporate new requirements into internal procedures

Ongoing Requirements

How We Can Help

We track HMRC guidance as it is updated and build every report around the documentation and methodology standards it sets out, so the reasoning behind the valuation is transparent if HMRC asks questions.