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When dealing with Compulsory Purchase Orders there are ways to ensure a fair deal, says Alison Ewing, associate director, Grant Thornton


T


he last budget saw George Osborne articulating his aim of “investing in the arteries to get growth flowing to every part of the country”. Infrastructure spending usually signals the


acquisition of land by compulsory purchase order (CPO) or similar means, requiring businesses operating from that land to relocate or close down. Development schemes are usually


long in the planning so businesses may have to live with the possibility of losing their property for some time. Often years can elapse between the development scheme first becoming public knowledge and the property being acquired. The challenge for the business owner is to keep focused on running the business whilst dealing with the uncertainty. A business that has its property


purchased compulsorily is entitled to compensation. In addition to receiving the market value of the property, it is entitled to “Fair Compensation” for disturbance. However, assessing this compensation, which should put the business in the same financial position as it would have been in had there been no CPO, is not easy. If the business cannot relocate and has to close, the compensation will include the value of the future profits, or goodwill, of the business “extinguished”. The business owner’s view on the value of those future profits is often very different from those of the acquiring authority (the body given the power to compulsorily acquire the land).


Acquiring authorities are more


likely to be receptive to the business owner’s view if it is supported with good accounting information: vague claims as to the value of the business that are not backed up by valuations based on accounting profits are unlikely to be met. A common mistake is to focus on


areas such as how long the business has been in operation or in a particular location, the quality of management, and awards won. Robust, comprehensive


COMPENSATION FOR COMPULSORY PURCHASE: WHAT TO THINK ABOUT


l Do keep records of how the impending CPO impacts your business. Keep notes of cases where, for example, orders have been lost as a result of doubt as to whether your business will continue. Photographs (dated) will be very useful in cases where construction work is being carried out adjacent to your premises.


l Do engage in dialogue with the acquiring authority at an early stage. l Do assemble accounting information with explanations. Assemble accounts for your business for a reasonable period prior to the CPO and provide explanations for trends in performance. l Do consider the tax implications at an early stage. Will compensation claimed


give rise to a chargeable gain or to income or corporation tax? Consider which will be most advantageous for you. l Do keep records of time spent in dealing with the CPO, including time spent assembling information and in meetings with professional advisers and customers.


Summer 2013 www.estatesgazette.com 45


financial information and tangible data to demonstrate business performance are far more powerful and invariably lead to a better outcome. Some businesses may be adversely


impacted prior to the property being acquired. For example, one of our clients, a motor retailer, saw a decrease in potential customers visiting his showroom as work on the roads around the showroom led to poorer access. Our client’s case was helped by photographs (dated) of the roadworks and by detailed business records showing daily sales. For a business impacted in this way, it is essential to keep good records. The key to successfully negotiating


compensation is to start talking early and keep the acquiring authority informed of developments. If the acquiring authority understands the business and the way it is being impacted by the CPO, there is more chance of agreeing a satisfactory settlement. It also makes sense to consider the


accounting and tax implications of compensation at an early stage as some elements of the compensation may be taxed at lower levels than others. For example, if it is not possible to relocate the business or the costs of relocating are greater than the value of the business, then it may be necessary for the business to close, in which case compensation for “extinguishment” will be due. Depending on the business structure, and if the appropriate conditions are in place, compensation for extinguishment paid to small businesses can attract entrepreneurs’ relief, which means tax at only 10%. Every business is different and


the issues arising from CPOs can be extremely complex. The challenges for a small owner-managed business may be very different from those of a large company with a complex manufacturing process. Relocation or closure of a business can evoke strong personal feelings but the key to negotiations is seeking expert advice, providing thorough information and frequent communication with the acquiring authority.


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