valuation-basis

---
name: valuation-basis
description: Turns your accounts, your own list of proposed add-backs and your related-party facts into the information and method a valuer or buyer's accountant actually works from, never a number: a maintainable-earnings method explainer naming the recognised approaches with no figure attached, an add-back register listing each claimed adjustment against its evidence without ever totalling it, a related-party review referencing the statutory disclosure test, a goodwill position applying the personal-versus-business goodwill test to your facts, and a Business Asset Disposal Relief position recording the current rate, lifetime limit and which conditions you meet. Use when you are one to three years from selling or handing on the business and want to understand how a buyer will actually value it before asking anyone what it is worth.
---

# Understand how a buyer values a business like yours, without a number attached to your own

You give this your accounts, your own list of proposed add-backs each with an amount, a year and the evidence behind it, your related-party facts such as rent paid to a connected landlord or a family member on the payroll, what you know about how any goodwill in the business arose, and the facts that bear on your own Business Asset Disposal Relief position. You get back the method: what "maintainable earnings" means, which add-backs a buyer's accountant will actually recognise, the difference between valuing the assets and valuing the earnings, how goodwill is treated for tax purposes, and the current relief rate and lifetime limit so you understand your own after-tax position on whatever figure a valuer eventually gives you. It will never state an EBITDA multiple, a turnover multiple, a price per cover or any other benchmark for a single independent UK hospitality business, because no reliable public figure exists. Every multiple in circulation comes from a broker paid a percentage of the sale, a direct conflict of interest, and an owner who anchors on a borrowed number either turns down the one fair offer they get or hands away margin they never needed to.

## What it does

1. **Separate the two things a valuer actually does, and refuse to do the second one.** A valuer starts from your maintainable earnings or your net assets, applies a judgement about risk, growth and the market for businesses like yours, and reaches a figure. This skill does the first half only: it assembles the facts a valuer needs and explains the method by name. It will not perform the judgement step, because that is exactly what a buyer, a broker or your own accountant is paid to bring, and a number produced without it is a guess wearing a valuation's clothes.

2. **Name the two recognised approaches, and record which facts point at which one, without choosing.** HMRC's Shares and Assets Valuation team, known as SAV, exists to "work out the value of shares and assets in unquoted companies for Inheritance Tax and Capital Gains Tax purposes", covering shares in companies "which do not have a listing on a recognised Stock Exchange" and trade-related property such as a pub or restaurant premises. HMRC's own internal manual also refers to a business interest being "valued by reference to the net underlying assets", the asset-based approach in a sentence: what the business owns, less what it owes. The alternative is the earnings-based approach, valuing the level of profit a buyer could reasonably expect to continue, which the rest of this skill calls maintainable earnings. Record whether the business trades mainly from freehold property with modest earnings relative to that asset, pointing toward the assets basis, or whether earnings are strong relative to the assets, pointing toward the earnings basis. Do not resolve the question; leave the choice to the valuer.

3. **Start maintainable earnings from the filed or signed profit figure, and change nothing on the page it came from.** The starting point is the profit already in your accounts, for the years you can evidence. Do not restate it, round it or blend it with a different year's figure. The add-back register in the next three steps sits beside this number and is never merged into it inside this skill, because a buyer's accountant who cannot walk an adjusted figure back to a filed one stops trusting the rest of the pack.

4. **Build the owner's salary add-back, and size it against what it would cost to replace you, not against what you draw.** A buyer's accountant recognises this add-back because your reported profit already includes a cost, your own labour, that a buyer will replace with somebody else's. HMRC's own guidance on goodwill draws the boundary this skill uses: "Any goodwill attributable to the personal skills of the proprietor, for example the personal skills of a chef or a hairdresser, will not be transferred to the new proprietor." Where you are a material part of why customers come back, the genuine add-back is your salary as reported, replaced conceptually by what a market-rate manager would cost, not simply removed. Record both figures, your actual drawings and the market-rate estimate, with a note on who supplied it and how. This is the add-back checked hardest, because it is the one owners most often inflate.

5. **Build the one-off cost add-back, and keep the test narrow.** A genuine one-off add-back is a cost that will not recur under new ownership and was not part of the ordinary running of the business in the year it fell: a legal dispute, an uninsured flood repair, a one-off rebrand, a redundancy payment on a role that will not be replaced. For each item, record the amount, the year, the document proving it happened, and one line on why it will not recur. A cost that happens most years, even if it varies in size, such as equipment replacement, is not a one-off, and listing it as one is the fastest way to lose credibility with an accountant who has seen the trick before.

6. **Build the related-party add-back, and test it against the statutory disclosure rule rather than your own opinion of what is fair.** Accounts prepared under the small companies regime must give "particulars" of related-party transactions "if such transactions are material and have not been concluded under normal market conditions." That is also the test a buyer's accountant applies to rent paid to a connected landlord, a director's loan, or wages paid to a family member: not whether it is disclosed, but whether it sits at the rate an unconnected party would have agreed. Record the counterparty, the relationship, the amount, and whether a market comparison exists showing the rate is or is not at arm's length. An item recorded as "no comparison supplied" is priced by the buyer's accountant as uncertainty, not taken on trust.

7. **State the goodwill position using the personal-versus-business test, and record which side of it your business sits on.** For Capital Gains Tax purposes, goodwill is "the attractive force which brings in custom", and the same guidance draws the line this skill records: personal goodwill tied to your own skill does not transfer to a buyer, while goodwill attributable to the business's reputation and customer connections, independent of you, does transfer as part of a sale. Record whether any goodwill was purchased when you acquired the business, with the amount, the date and the evidencing document, and separately record your own honest assessment of how much of today's custom would follow you out the door versus stay with the premises, the brand or the staff. This is a factual record, not a valuation, and it feeds back into step 4: the more goodwill is personal to you, the larger the genuine owner's salary add-back becomes.

8. **Read the Valuation Office Agency's published method for pubs, and use it only to see what a real published method looks like.** The VOA publishes a method "to assist... in achieving the accurate assessment of nearly 40,000 licensed properties for the purposes of establishing appropriate rateable values", a two-stage Fair Maintainable Trade calculation with percentages applied to drinks, food, accommodation and other income. It is a genuine, published, government method, worth reading precisely for what it is not: it sets business rates, the property tax equivalent of council tax, not a sale price, and its percentages are calibrated to rental evidence, not sale transactions. If a broker or franchise pack ever points at a rateable value calculation and calls it a sale valuation, this step shows why that borrowing is wrong, and records the distinction in writing.

9. **Record your Business Asset Disposal Relief position against the rate and limit in force today, and flag that both must be re-checked on the day you actually sell.** The relief currently charges "18% on all gains on qualifying assets disposed of from 6 April 2026", the rate for a disposal made today, 23 September 2026, inside the 2026 to 2027 tax year; it was 14% between 6 April 2025 and 5 April 2026, and 10% before that. The lifetime limit is £1 million for disposals on or after 11 March 2020, applied per individual, so a spouse with a genuine ownership stake carries their own separate limit. For a sole trader or partner the condition is ownership of at least two years; for shares, the company must be your personal company, at least 5% of both shares and voting rights, held for two years, with you as an officer or employee throughout. Record which conditions you meet, which you do not, and which carry a two-year clock that cannot be fixed the month before completion. This is not a tax calculation, it is the fact pattern your accountant needs to run one, because Capital Gains Tax is charged on "the gain you make", not on the sale price itself.

10. **Hand the assembled facts to Codex to build the files, and read the gap count before anything else.** Claude passes over the filed profit figures with their years, every add-back the owner has proposed with its category, amount, year and evidence status, the related-party facts, the goodwill facts and the BADR facts, exactly as supplied and with no view on whether any of it is genuine. Run:

    ```
    codex exec --sandbox danger-full-access --skip-git-repo-check -C "<working folder>" - < CODEX.md
    ```

    Back come the add-back register, the maintainable-earnings method file, the goodwill position, the BADR position, the related-party review and `gaps.md`. Codex records and counts. It never decides whether an add-back is genuine, never totals the register, and never estimates a value. A gap count of zero against a real set of proposed add-backs is a reason to look again, not relax, because it usually means evidence was assumed rather than checked.

## Then it checks

1. No file produced by this skill states a multiple, a price per cover, a total value or any other single figure that purports to be what the business is worth.
2. The add-back register lists every proposed add-back against its category and evidence status, and no file sums those rows into a single adjusted profit or adjusted EBITDA figure.
3. Every add-back sits in one of the three recognised categories, owner's salary normalisation, one-off non-recurring cost, or related-party transaction not confirmed at arm's length, or is marked as outside those categories rather than silently accepted.
4. The goodwill file states the personal-versus-business goodwill test and records which side of it the business's custom falls on, with no figure attached to the goodwill itself.
5. The BADR file states the 18% rate for disposals from 6 April 2026, the £1 million lifetime limit from 11 March 2020, and a note that both must be re-checked on the day of any real disposal.
6. Any reference to the VOA's pub valuation method is labelled explicitly as a business rates method, never as a sale-price method, wherever it appears.

Any check fails: name it, redo that step once. Failed twice: say what is wrong and stop.

## Rules
- Public information only.
- Never invent a fact, a number or a quote.
- Anything sent in someone's name says whose name it is.
- Never state, calculate or imply an EBITDA multiple, a turnover multiple, a price per cover, a rule-of-thumb valuation or any other benchmark for a single independent UK hospitality business, anywhere, under any circumstance. No reliable published figure exists on gov.uk, from the Valuation Office Agency or from the Office for National Statistics. Every multiple that circulates in the trade comes from a broker paid a percentage of the sale, a direct conflict of interest, or from a firm selling a valuation product. An owner who prices against a borrowed multiple either turns down the one fair offer they actually get, because it falls under a number that never applied to their business, or gives away margin they never needed to.
- Never total the add-back register into a single adjusted profit or adjusted EBITDA figure. That calculation, and the judgement about which adjustments a buyer will accept, belongs to the buyer's own accountant.
- Never decide whether a claimed add-back is genuine. The owner and their accountant make that judgement and supply it; this skill records the evidence behind it.
- Never state which valuation approach, assets or earnings, applies to a business. The facts that bear on the choice are recorded; the choice itself is the valuer's.
- Never present the Valuation Office Agency's rating method, or any other published statutory method, as though it produces a sale price. It does not, and was never designed to.
- This output is a working document prepared for the owner's own accountant or valuer to check. It is never legal advice, never tax advice, and it never produces a valuation or a figure that purports to be one.

## Built from
- HM Revenue and Customs and GOV.UK, "Business Asset Disposal Relief", https://www.gov.uk/business-asset-disposal-relief, no date shown on the page, read 23 September 2026: the 18% rate from 6 April 2026 and the sole trader, partner and personal company conditions, step 9.
- HM Revenue and Customs, "HS275 Business Asset Disposal Relief (2026)", https://www.gov.uk/government/publications/entrepreneurs-relief-hs275-self-assessment-helpsheet/hs275-business-asset-disposal-relief-2026, updated 6 April 2026, read 23 September 2026: the £1 million lifetime limit from 11 March 2020, per individual, step 9.
- HM Revenue and Customs internal manual, Capital Gains Manual, CG68010 "Goodwill: outline", https://www.gov.uk/hmrc-internal-manuals/capital-gains-manual/cg68010, published 12 March 2016, updated 23 September 2026, read 23 September 2026: the definition of goodwill and the personal-versus-business goodwill test, steps 4 and 7.
- HM Revenue and Customs internal manual, Shares and Assets Valuation Manual, SVM101010 "What does SAV do?", https://www.gov.uk/hmrc-internal-manuals/shares-and-assets-valuation-manual/svm101010, published 13 March 2016, updated 7 April 2026, read 23 September 2026: SAV's role valuing unquoted shares and trade-related property, step 2.
- HM Revenue and Customs internal manual, Inheritance Tax Manual, IHTM25094, https://www.gov.uk/hmrc-internal-manuals/inheritance-tax-manual/ihtm25094, updated 7 April 2026, read 23 September 2026: a business interest "valued by reference to the net underlying assets", naming the asset-based approach in step 2.
- Valuation Office Agency and GOV.UK, "Capital Gains and other taxes manual: Section 5", https://www.gov.uk/guidance/capital-gains-and-other-taxes-manual/section-5, updated 1 July 2026, read 23 September 2026: property valuation as VOA expertise versus business valuation as SAV expertise, step 2 and the caution in step 8.
- Valuation Office Agency, "Valuation of Public Houses 2026", https://www.gov.uk/government/publications/valuation-of-public-houses-2026/valuation-of-public-houses-2026, published 11 May 2026, read 23 September 2026: the Fair Maintainable Trade rating method for licensed premises, the worked example in step 8 of a real published method that is not a sale-price benchmark.
- The Small Companies and Groups (Accounts and Directors' Report) Regulations 2008, SI 2008/409, Schedule 1, paragraph 66, https://www.legislation.gov.uk/uksi/2008/409/schedule/1/paragraph/66, amendments to 31 December 2020, read 23 September 2026: the disclosure test for related party transactions not on normal market conditions, step 6.
- HM Revenue and Customs and GOV.UK, "Capital Gains Tax for business assets", https://www.gov.uk/capital-gains-tax-businesses, no date shown on the page, read 23 September 2026: qualifying business assets and reliefs on a business disposal, step 9.
- HM Revenue and Customs and GOV.UK, "Capital Gains Tax", https://www.gov.uk/capital-gains-tax, no date shown on the page, read 23 September 2026: "it's the gain you make that's taxed, not the amount of money you receive", separating the valuation figure from the tax base in step 9.

# valuation-basis

## You are given
The owner's filed or signed accounts for each year they can evidence, stated as a profit figure with the year and the accounts type (filed accounts, signed accounts or management accounts). The owner's own list of proposed add-backs, each with a description in the owner's own words, a category, an amount, a year and a statement of whether an evidence document exists and, where it does, its file name and date. The owner's statement of every related-party transaction that touches the business, such as rent paid to a connected landlord, a loan from a director, or wages paid to a family member, each with the counterparty, the relationship, the amount, the year and whether the owner or their accountant holds a market-rate comparison showing the arrangement is or is not at arm's length. The owner's facts on how any goodwill in the business arose, including whether it was purchased, the amount, the date and the evidencing document, and the owner's own assessment of how much of the business's custom is tied to them personally versus the premises, brand or staff. The owner's facts bearing on their own Business Asset Disposal Relief position: whether they are a sole trader, a partner or a shareholder, how long they have held that position, and, for shares, the percentage of shares and voting rights held and whether they are an officer or employee of the company. Every judgement call, including whether a proposed add-back is genuine, whether a related-party rate is at arm's length, whether goodwill is personal or transferable, and which valuation approach might apply, has already been made by the owner or their accountant, or is explicitly marked as undecided, and is supplied to you exactly as given. You decide none of it.

## Produce
Write into a `./valuation-basis-output/` folder:

1. `add-back-register.csv` with these columns in this order: `add_back_ref`, `description_verbatim`, `category`, `amount_gbp`, `year`, `evidence_document_supplied`, `evidence_file_name`, `evidence_date`, `recognised_category`. `add_back_ref` is A001 upward. `category` is exactly one of `owner_salary_normalisation`, `one_off_non_recurring_cost`, `related_party_transaction`, `other_supplied_by_owner`. `evidence_document_supplied` is `yes` or `no`. `recognised_category` is `yes` where `category` is one of the first three and `no` where it is `other_supplied_by_owner`. Never add a total row, a sum column or any adjusted profit figure to this file, in this or any other file. Every row where `evidence_document_supplied` is `no` is also listed in `gaps.md`.
2. `maintainable-earnings-method.md` recording, on separate lines and nothing else: the filed or signed profit figure for each supplied year with its source label, copied verbatim and never adjusted; a statement naming the two recognised valuation approaches as `asset-based (net assets)` and `earnings-based (maintainable earnings or discounted cash flow)`, with no figure attached to either name; the facts the owner supplied that bear on which approach might apply, listed as facts only; and a line stating that the choice between approaches is not made in this file. No number representing an adjusted or maintainable earnings figure appears anywhere in this file.
3. `goodwill-position.md` recording: whether goodwill was purchased, not purchased, or unknown, exactly as supplied; where purchased, the amount, the date and the evidencing document exactly as supplied; the owner's own verbatim assessment of how much custom is personal to them versus tied to the business; and a line applying the personal-versus-business goodwill distinction to those facts as a description, never as a value.
4. `badr-position.md` recording, on separate lines: the rate, stated as `18 percent for disposals from 6 April 2026`, and a line stating it must be re-checked against the current rate on the day of any real disposal; the lifetime limit, stated as `GBP 1,000,000 for disposals on or after 11 March 2020, applied per individual`; then, for the owner's supplied facts, whether each of these conditions is `met`, `not met` or `unknown`: sole trader or partner status, two years of ownership, for shares whether the company is the owner's personal company with at least 5% of shares and voting rights, and two years as an officer or employee. Every `unknown` condition is also listed in `gaps.md`.
5. `related-party-review.csv` with these columns in this order: `item_ref`, `counterparty_name_verbatim`, `relationship`, `transaction_type`, `amount_gbp`, `year`, `market_rate_comparison_supplied`, `evidence_file_name`, `disclosure_required_sch1_para66`. `item_ref` is R001 upward. `market_rate_comparison_supplied` is `yes` or `no`. `disclosure_required_sch1_para66` is `yes` where the owner has stated the transaction is material and not concluded on normal market terms, `no` where the owner has stated it is on normal market terms, and `not stated` otherwise. Every row where `market_rate_comparison_supplied` is `no` or `disclosure_required_sch1_para66` is `not stated` is also listed in `gaps.md`.
6. `gaps.md` a numbered list of: every add-back with no evidence document; every related-party item with no market-rate comparison or an unstated disclosure position; every BADR condition recorded as `unknown`; the goodwill position where it is recorded as `unknown`; and any figure supplied by the owner without a year attached to it.

## Rules
- Codex records, sorts and counts. It never decides whether a claimed add-back is genuine, never computes an adjusted profit, adjusted EBITDA or any single earnings figure, never estimates a value for the business or for goodwill, and never chooses between the asset-based and earnings-based approaches. Those judgements were supplied, or were not, and either way they are not yours to make.
- Never total the add-back register. A part-evidenced register is reported as incomplete, never rounded up into a single figure.
- Never write a benchmark. No EBITDA multiple, turnover multiple, price per cover or industry rule of thumb is to be written into any file, because none exists for a single independent UK hospitality business.
- Never carry a figure forward from a prior year's file or a prior valuation exercise into this one. Only the owner's current supplied facts are used.
- Never mark a related-party transaction as being at arm's length, or an add-back as recognised, on the strength of the description alone. Only a supplied market-rate comparison or the owner's own explicit statement supports either conclusion; everything else is recorded as `no` or `not stated`.
- Use British English, GBP written as `GBP` or the pound sign, and DD Month YYYY dates. No em dashes in any file you write, and any supplied text containing one is recorded verbatim and flagged in `gaps.md`.
- Every quoted description, counterparty name and owner statement is copied exactly, including its punctuation and capitalisation.
- Every file ends with this line: this is a working document prepared for the owner's own accountant or valuer to check. It is not legal advice, it is not tax advice, and it is not a valuation.

## Return
The absolute path of every file written, the row count of each CSV, the count of add-backs by `evidence_document_supplied` status and by `category`, the count of related-party items by `market_rate_comparison_supplied` and `disclosure_required_sch1_para66` status, the BADR rate and lifetime limit exactly as recorded in `badr-position.md` together with the count of conditions marked `met`, `not met` and `unknown`, the goodwill position recorded in `goodwill-position.md` stated in full, and the `gaps.md` item count.