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Nellsar v HMRC

This is a case about valuation. The company here purchased five care homes as going concerns. In its accounts it allocated, for each acquisition, part of the overall purchase consideration to goodwill and part to freehold property (and a small part to fixtures and fittings which was not contentious).

As the amounts attributed to goodwill would qualify for amortisation relief it was advantageous for the company to allocate more to the value of the goodwill and less to the value of the property.

HMRC challenged the valuation methodology which the company had applied and the First Tier Tribunal accepted that the company’s accounts were not GAAP compliant. It said that the valuation of the property should have taken into account the inherent trading potential of the property rather than simply taking a depreciated replacement ‘bricks and mortar’ cost basis.

The company’s appeal to the Upper Tribunal failed. Essentially this was because the determination of the correct accounting treatment is a matter of fact and there were no Edwards v Bairstow