Shares used in employee schemes are valued at market value as defined for capital gains tax in sections 272 and 273 TCGA 1992, which ITEPA 2003 adopts. HMRC’s Shares and Assets Valuation (SAV) team will agree a value in advance only for tax advantaged schemes: EMI through form VAL231, Share Incentive Plans through VAL230, and CSOP and SAYE by letter. For other awards there is no advance agreement, and the company’s own valuation stands until HMRC checks it.

What does market value mean for employee shares?

Section 421(1) ITEPA 2003 says that for the employment related securities rules, market value has the same meaning as for capital gains tax. Section 272 TCGA 1992 defines it as the price the shares might reasonably be expected to fetch on a sale in the open market. For unquoted shares, section 273 adds an information standard: the hypothetical buyer is assumed to have all the information a prudent prospective purchaser might reasonably require if buying from a willing vendor by private treaty and at arm’s length. In practice this means that sale talks, a funding round under negotiation or strong current trading cannot be ignored just because outsiders do not know about them.

Two values often need to be found. Actual market value (AMV) reflects the restrictions on the shares, such as forfeiture on leaving or pre emption on transfer. Unrestricted market value (UMV) ignores them. HMRC’s Shares and Assets Valuation Manual at SVM110050 says both should always be considered, although if a single price is agreed that is at least UMV and options are granted at that price, there is no need to agree a separate AMV.

Why do the scheme limits depend on valuation?

The tax advantaged schemes set their limits by value, so the valuation decides how many shares can be put under option. SVM110050 states that an employee may hold unexercised EMI and CSOP options with a UMV of up to £250,000, subject to a total for all employees of £6 million from 6 April 2026 (previously £3 million). For a CSOP, paragraph 6 of Schedule 4 ITEPA 2003 limits each employee to options over shares with an aggregate market value of £60,000, ignoring restrictions, and paragraph 22 says the exercise price must not be manifestly less than market value at grant or at an earlier time set under HMRC guidance. See our pages on EMI and CSOP for the wider scheme rules.

Which schemes can get an HMRC agreed value?

GOV.UK guidance lists what SAV will agree:

Scheme How to apply How long the value lasts
Enterprise Management Incentives Form VAL231, proposing both UMV and AMV 90 days from the date of agreement
Share Incentive Plan Form VAL230 with background information and a proposed value Up to 6 months, ending early on a significant event
CSOP and SAYE Letter to SAV with a proposed value, three years of accounts and other relevant information such as plans to sell or float Not stated in the guidance

Outside these schemes the door is mostly closed. SAV’s GOV.UK page says it does not give post transaction valuation checks for ITEPA purposes or informal health checks for PAYE purposes, and SVM109020 says valuation is excluded from pre transaction rulings, with a check considered only very exceptionally where a substantial number of employees is involved and the transaction is straightforward.

How does the EMI valuation process work?

SVM110050 sets out the practical rules. SAV should not be approached until the company is ready to grant the options, and EMI requests are given priority on receipt. An agreed value is valid for 90 days, provided there are no changes in the company’s circumstances that might affect the value before the options are granted. If the options are not granted in time, a new VAL231 is needed. Submissions are risk assessed, and agreement is voluntary: a company can grant options without one.

Where no value is agreed, ETASSUM58020 explains that an HMRC officer can determine market value under paragraph 56 of Schedule 5 ITEPA 2003, but only after opening an enquiry into the option. Before a determination notice is given, the company can require the value to be referred to the Tribunal. Once the enquiry window has passed without an enquiry, the value notified for the grant is taken as correct unless HMRC discover false or misleading information, which can include an incorrect valuation.

What counts as a significant event?

The GOV.UK guidance on SIP valuations lists events that end an agreed value early, and they are a useful checklist before relying on any agreed value:

  • any change, completed or actively contemplated, in the company’s share or loan capital;
  • any arm’s length transaction in the company’s shares, completed or actively contemplated;
  • negotiations or preparations for a flotation or takeover;
  • a dividend declared on any class of shares;
  • new financial information, such as annual accounts or interim results.

A SIP value can be extended beyond six months by writing to SAV to confirm that no significant event has happened or is likely in the extension period.

How does SAV approach the valuation itself?

SVM110050 says there is often no better indication of value than actual transactions in the same or similar shares, so the valuer should first look for recent transactions, how frequent they were and anything unusual about them. An investment by an outside investor with preferential rights may need substantial adjustment. Without a market or recent transactions, a valuation technique is used. HMRC publishes three simplified examples:

  • Start up with outside investment. An investor paid £10 each for A shares carrying board appointment rights and priority on a return of capital. HMRC suggests the ordinary shares could reasonably be discounted by at least 30%, giving an AMV of £7, with a 10% premium for ignoring forfeiture and pre emption restrictions, giving a UMV of £7.70.
  • Start up funded by founders. Two founders paid £1 a share. With no trading history and few assets, employee shares could reasonably be valued at the same £1, discounted if the founders hold preferential rights.
  • Established trading company. Maintainable post tax profit of £600,000 over 200,000 fully diluted shares gives earnings of £3 a share. A quoted comparator’s price earnings ratio of 12.03 is discounted by around 60% to 65% to 4.5, giving an AMV of £13.50. A dividend yield cross check gives the same figure, and adding around 20% because the board’s veto on transfers is ignored gives a UMV of £16.20.

For companies with heavy borrowing, SVM110050 describes an enterprise value approach using a discounted EBITDA multiple from comparable companies, with debt then deducted to reach equity value before minority discounts are applied.

What about awards outside the tax advantaged schemes?

Growth shares, unapproved options and outright share awards have no advance agreement route. The company or its adviser values the shares, and the figure is used for PAYE where the shares are readily convertible assets, or in the employee’s self assessment return. ERSM220070 says that where HMRC wants to check values put forward in a return or by the employer, SAV advises whether the value can be accepted or a formal valuation is needed. Under SVM109020 the HMRC officer must give SAV the basis of charge, the latest accounts, the holding, the rights attaching to the shares and any elections to disregard restrictions. Our page on employment related securities explains the elections.

The same value usually feeds the employee’s capital gains tax base cost. CG56550 says a valuation obtained for employment income purposes can also be used for capital gains purposes.

The fair value used for the accounting charge under FRS 102 Section 26 is a separate exercise. Paragraph 26.10 sets a three tier hierarchy: an observable market price, then entity specific data such as a recent transaction or independent valuation, then a generally accepted valuation method chosen by the directors.

How are valuation disagreements settled?

SAV’s guidance says almost all valuations referred to it are settled by negotiation. It aims to reach agreement within four weeks of having the information it needs and to answer correspondence within 10 working days. If agreement cannot be reached, the valuation can go to the tax tribunal once the return has been filed, and a taxpayer who thinks SAV has made a mistake can ask for a review by the Assistant Director responsible. Our page on reviews and the tax tribunal covers the appeal route.

What mistakes do companies make?

  • Granting EMI options after the 90 day validity period, or after a term sheet or offer has arrived within it.
  • Using the latest investor price for ordinary shares without adjusting for preference rights, or using nominal value regardless of trading.
  • Proposing only one value on VAL231 when the form asks for UMV and AMV.
  • Ignoring the section 273 information standard, so confidential sale talks are left out of the valuation.
  • Assuming the FRS 102 fair value and the tax market value must be the same figure.

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Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 8 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.