The case of Graham Michael Wildin v HMRC [2014] TC03586, involved a dispute on the correct method for valuing goodwill in an accountancy practice. HMRC favoured an assets-basis and the accountant, the appellant, a multiple of Gross Recurring Fees (GRF).

The dispute was in respect of both the March 1982 deemed disposal rules and subsequent actual disposal in 2003. The initial matter under appeal concerned the 1982 valuation, but a request to amend the grounds for appeal was granted in 2011 when the taxpayer disputed the 2003 valuation.

The valuation issues in dispute related to the methodology and multiples used:

  • The taxpayer had used 3.5 and 1.5 for the 1982 and 2003 values respectively.
  • HMRC asserted multiples of 1 and 0.88, and the ‘whole practice method’ used by HMRC for calculating goodwill. This takes GRF, plus Work-In-Progress (WIP) less net assets.

HMRC produced two formulas to be applied to the valuation depending on the multiple of fees that was known. M1 being used to calculate goodwill and M2 to calculate practice value.

1. Total Practice Value = GRF x M1 + net assets

2. Goodwill = GRF x M2 – net assets

The taxpayer argued that an accountancy practice should be valued simply by applying a multiple to GRF with no adjustment for net assets.

The First Tier Tribunal (FTT) dismissed HMRC’s claim that there was a link between the value of goodwill and the net assets of professional firms, accepting that net assets should not affect overall value. Taking the ‘client book’ as a proxy for value of goodwill is a reasonable method of arriving at a goodwill valuation for CGT purposes for professional firms.

On reviewing the limited evidence for an appropriate March 1982 multiple, the FTT relied on the information in HMRC's Share and Asset Valuation (SAV) database. It concluded that a reasonable multiple for the practice would be in the region of 1.5-1.75. An average multiple of 1.625 was therefore applied to the GRF shown in the 1983 year-end figures, but excluding the value of work in progress, which had originally been brought into account by the taxpayer, on the grounds of effectively double counting.

A similar position was taken on the subsequent 2003 valuation, relying on information on the SAV database and concluding that the 1.5 multiple was reasonable, but the best approximation of fee valuation was obtained by taking a three-year average turnover figure.


This case will be of particular interest to anyone involved in valuing professional service firms or considering a Valuation of goodwill when incorporating an existing firm.

Useful guides on this topic

Incorporation of an existing business
This guide explores the main issues when a sole trader's business is incorporated into a company.

Valuation of goodwill
What valuation methods are suitable for valuing a business? What are the issues with goodwill and other intangibles? What does HMRC suggest? What do the courts think?

External links

Wildin v HMRC [2014] TC03586