Value a business

With future modifications in certain tax alternatives (mainly commercial reductions for the IHT and the reduction in the elimination of commercial assets for the CGT, many business owners plan to sell their companies or transfer them to members of The family as part of a wider family tax plan.

An important part of which will be to put a value to the company which, in this article, we will examine the different ways that this can be achieved.

The HMRC requires that the evaluations reflect the fair market value (FMV) – the price that the company would cost between a buyer and a voluntary seller in a transaction of arm length. Ensuring compliance with HMRC directives and appropriate documentation is essential to avoid disputes.

1. The capitalized income / profits approach

The income approach considers the value of a company according to its ability to generate profits or cash flows. The reduced price cash flow method (DCF) projects future cash flows and reduces them to acquire a value using a rate reflecting the risk and value of time.

Alternatively, the capitalized profits method assesses historical profits and applies a capitalization rate to determine the value. This approach works well for companies established with coherent income flows.

2. Market approach

The market approach uses comparisons with similar companies. The comparable analysis of companies assesses measures such as remuneration prices or multiple income -based income accessible to the public.

Previous transactions focus on the sale prices of comparable companies, adjusted for differences in terms, industry and economic conditions. These methods are particularly useful for companies operating in competitive sectors with accessible market data.

3. The asset -based approach

The asset -based approach calculates the net value of the assets of a company, often used for businesses heavy with assets or where the company is no longer an in progress concern.

The adjusted net asset method determines the fair market value of all tangible and intangible, less passive assets. In the event of liquidation, the evaluation assumes that the assets of the company are sold in order or forced.

When you assess a business for British tax purposes, it is essential to comply with the rules of the HMRC and to consider the tax context.

For succession tax, the FMV is assessed on the date of death. Precise documentation is essential to be able to demonstrate that the evaluation reflects market conditions at the time of death.

Capital gains assessments focus on variations in the value of assets between acquisition and elimination.

Introductive active ingredients, such as brands, patents and goodwill, often affect evaluations considerably and require a specialized assessment.

The current challenges encountered during the enhancement of a company include:

1. Difficulties in providing future cash flows.
2. Selection of an appropriate discount or capitalization rate.
3. Adjustment for non -commercial assets.

Family companies or private companies often require tailor -made adjustments due to market limited comparables.

It is essential to ensure that any assessment is correct and defensible if the HMRC has come to strike.

To do this, use several methods to cut the results.

Here, at etc, we are specialists in carrying out commercial assessments, so this should be something you or your customers need, please contact us.