EOT Advisory
Employee Ownership Trust Valuation: Trustee Process and HMRC Evidence
What actually happens between trustee instruction and a final EOT valuation report. The detail your advisers will need.
An EOT valuation is not a one-page indicative range. It is a formal, independent, HMRC-defensible report that the trustees can rely on to acquire the shares at open market value. This guide walks through the full process from initial instruction to final report, so trustees, sellers, and their advisers know what to expect and how to prepare.
Step one: trustee instruction
Trustees, not selling shareholders, instruct the EOT valuer; HMRC requires the agreed price not to exceed market value, and the trustee file must evidence methodology, comparables, and the equity bridge supporting the figure. The instruction letter sets out the scope (open market value of the controlling interest at the proposed transaction date), the basis (commonly fair market value on a going-concern basis), and the deliverable (a formal written report suitable for HMRC review). Our instruction letters are sent to the trustee board after a free preliminary call to confirm fit and timetable.
Step two: information pack and Q&A
We request three years of statutory accounts, three years of management accounts with monthly detail, customer mix by revenue, supplier mix, owner remuneration breakdown, any related-party transactions, contract summary, fixed-asset register, and a 3-year forward plan. The pack typically takes the finance team 1 to 2 weeks to assemble. We run a Q&A session with the finance lead and the senior management team to test assumptions.
Step three: adjusted earnings
We rebuild a normalised EBITDA figure from the statutory accounts. Owner remuneration is restated to market salary. One-off costs (legal, restructuring, COVID grants) are removed. Related-party transactions (above-market rent, family payroll) are normalised. The output is a defensible adjusted-EBITDA series for three years, with clear notes for each adjustment.
Step four: market evidence and multiple
We benchmark against completed UK SME transactions in the same sector and size band, drawing on subscription deal databases and our own deal experience. The multiple lands within a defensible range, with the specific position justified by customer concentration, recurring revenue, owner dependency, gross-margin trend, and management depth.
Step five: cross-check methods
The headline multiple-based enterprise value is cross-checked with a discounted cash-flow model (5-year forecast, sector-appropriate discount rate, sensible terminal) and net asset value. Where the methods triangulate, the range is robust. Where they diverge, we explain why in the report.
Step six: report and HMRC support
The final report (typically 25 to 40 pages) covers scope, methodology, sources, adjustments, market evidence, cross-checks, conclusions, and signed independence declarations. We support trustees and their advisers through any subsequent HMRC clearance or query at no extra fee. The report and our underlying working file are designed to satisfy HMRC scrutiny.
Timetable and cost
From instruction to final report typically takes 4 to 6 weeks, faster for urgent timetables. Cost is quoted on the day of the preliminary call, normally £4,000 to £8,000 plus VAT depending on complexity. Trustees never pay for changes to scope driven by adviser feedback during the process.
Key takeaways
- Trustees instruct the valuer, not the sellers.
- Adjusted earnings, market evidence, and DCF cross-check are standard.
- The report is built to HMRC standard and supported through clearance.
- Typical timetable is 4 to 6 weeks at £4k to £8k plus VAT.
Frequently asked questions
How long does an EOT valuation take?
Four to six weeks from instruction, faster for tight timetables. The information pack is the critical path; once that is complete the analysis runs in parallel with the legal and tax workstreams.
What does an EOT valuation cost?
Typically £4,000 to £8,000 plus VAT depending on complexity. Quoted in writing before instruction; no fee changes during the engagement without trustee agreement.
Who can act as the independent valuer?
Any suitably qualified valuer with relevant SME experience, instructed independently of the selling shareholders. Look for transactional experience, not just audit credentials.
Can the same valuer support HMRC queries?
Yes, we include subsequent HMRC support in the engagement fee. The underlying working file is built to satisfy HMRC scrutiny.
Does the valuation set the price or just the ceiling?
It sets the ceiling. The trustees must not acquire shares above open market value; they may acquire at or below it. Funding constraints often set the actual price at or just below the valuation.
What if the trustees and the seller disagree on the valuation?
The trustees are bound by their duties to acquire at no more than market value. The seller can decline to sell at that price but cannot force a higher one. Disputes are rare when the valuer is genuinely independent and the methodology is transparent.
Want a real number for your business?
Free, confidential indicative valuation from the BusinessValuation.co.uk team.