Charterfields is a privately owned chartered surveying practice that operates from offices in London, Manchester and Sheffield to deliver class-leading professional services. Charterfields are international asset consultants providing bespoke valuation and asset management services for clients and professional intermediaries, covering: Insurance Cost Assessments and Claims Management, Financial Valuations and Asset Management, Property Advisory, and more.
Bernard has over 40 years' experience including ownership/senior roles at John Foord and latterly Edward Symmons.
Based in London but with a worldwide brief, Bernard works to develop their corporate business profile with particular emphasis on insurance and IFRS valuations.
With experience of leading surveys in over 60 countries and notable assignments including Sydney Opera House, Cadbury and BMW clients, Bernard is continuing his relationship with existing clients and developing new initiatives with Charterfields.
James Thomlinson: Bernard would you like to start with a bit of background on yourself and your areas of interest?
Bernard Stirzaker: I started in the profession in 1961 as a trainee valuer with a Manchester firm called Airey Entwhistle who specialised in valuing plant machinery and industrial buildings - primarily for insurance purposes but also for balance sheet and other financial requirements. For the first five or six years of my career I would say that for at least fifty per cent of the time my training and work was in the cotton mills of Lancashire. That is an industry which has sadly disappeared and was in its death throes even in the 1960s. There were many diverse aspects to the textile industry or cotton industry from yarn preparation through spinning, weaving, dying and bleaching, finishing and of course all the industries that supported it: heavy engineering and making textile machinery, foundries etc and a great deal of this industry was focused in Lancashire.
During this period I went to night school and obtained my professional qualifications and in 1967 I decided to go and live in South Africa having accepted a job with Dunlop Hayward and I went primarily to gain experience in mining valuations. I spent a great deal of time not only travelling around Southern Africa but also Eastern, Central and as far north as Ethiopia. The work was fantastic covering a very diverse range of industries. I wasn't particularly happy with living in South Africa, which of course in those days was a very repugnant society in many ways with apartheid and very insular. The work was fantastic, didn't enjoy living there, and came home in 1970, after about three years, to London and joined a very old family established business called John Foord. I rose through the ranks there over a period of fifteen years from senior valuer to managing partner. During that time I travelled extensively undertaking valuations in 70 countries around the world. The most significant landmark assignments that I dealt with personally was the valuation of the Sydney Opera House as well as the valuation of the North Peruvian Pipeline (which was then technically number two, number one being the Alaskan Pipeline). I left John Foord in 1989 and started my own business with some of the partners who had been in John Foord and subsequently sold that business in 1999. I am now acting as a consultant to Charterfields who are a specialised industrial valuation practice based in Sheffield, London and Manchester.
JT: Thanks Bernard. I am aware that one of the areas of speciality of yours is capital allowances and we're constantly amazed with the number of our customers that purchase building and miss the opportunity to fully explore their opportunities with capital allowances. Would you just like to talk a little about that and some of the more interesting points – perhaps during the last year or so?
BS: Yes: I got involved in capital allowances approximately 20 years ago when a very significant client of mine - who in turn had a client - needed advice in respect of his entitlement to claim in relation to a data centre in Docklands.
Whilst I knew something about the general framework of capital allowances I was unclear as to the actual process of determining a claim. Over a period of time on that initial job I worked with some capital allowance specialists who I knew and then after that I decided that this was potentially very good business opportunity for us, I didn't see any technical problems in relation to doing the work, and I decided it would be something that I would specialise in. What has amazed me and other practitioners in this field is just what a wonderful opportunity it is to save money - that most people miss. Put at its most simplest there are three areas in which claims can be made.
First of all: if you are constructing a new building the items that qualify within that building as plant and machinery or integral fixtures qualify for capital allowances. It's a fairly simple process to determine what does qualify, making sure you have all the cost data, and making a claim. Likewise when a building is being refurbished there is an golden opportunity to claim and in that situation the entitlement is greater than new build because you are allowed to claim not only for the new item that qualifies (and the instillation costs of such qualifying items) but also any demolition costs that have been involved in modifying the building to accommodate the qualifying items. And the third and most missed opportunity is when you are purchasing a building on the market and in that scenario, and assuming no prior claim has been made, you are entitled to claim on adjust and reasonable apportionment (which means you have to allocate the purchase price between qualifying and no qualifying items).
Typically on a high tech office building anything between 20-30% of the purchase price can qualify for capital allowance purposes. What that means in actual cash terms is that you can offset those allowances against income and depending on the rate of tax you are paying then there is a significant cash benefit over the period that the allowances are being claimed. Of course where people are borrowing money to purchase property this is a great incentive as well as a missed opportunity to improve cash flow. As far as the lender is concerned it is attractive to them because they can see that with the improvement in cash flow that regarding the payments on the loan there is going to be even less risk involved. There are other areas where you can claim capital allowances but I am just focusing as far as this interview is concerned on these three principle areas.
It would be unreasonable if I didn't mention some of the difficulties involved in preparing capital allowances claims and most recently this year the case of Tapsell and Leicester trading as 'The Granleys' has highlighted one of the most significant problems. Some time ago legislation was introduced that made it clear that you could only make a claim on acquired properties providing you could demonstrate that no prior claim had been made by any previous owner since 24 July 1996. Encapsulated in the legislation was the wording that the onus to demonstrate this lay with the person making the claim. This has proved to be an extremely difficult and complicated area and in many instances properties being bought today may have had four, or 5, if not more previous owners and it is impossible to determine whether they made any claim or not. What this recent case has demonstrated is that the onus of proof in with the claimant to determine whether any prior claim has been made. Of course this doesn't mean that if you have hit a brick wall you can't write to the revenue and tell them that (and hope that whatever other documentary evidence you may have demonstrates that no prior claim was made in your opinion; then you may achieve some success). I think that it is fair to say that clarity has been needed for some time about this condition and it has now been ratified that the onus of proof is clearly vested with the purchaser.
JT: Thanks Bernard. Moving forward into the future somewhat I am aware that IFRS3 is going to become increasingly important to the market place and I am aware that you have got an increasing involvement in IFRS3. Could you tell us a little bit more about it and the connotations that come with it?
BS: IFRS3 (International Financial Reporting Standard 3) has been introduced and is now a mandatory requirement for businesses acquiring other businesses to allocate the purchase price paid between tangible and intangible assets. The main purpose of this requirement is to ensure that as far as shareholders are concerned the allocation of the purchase price is independent, credible, and fair; and that the balance sheet is carrying amounts which are realistic as opposed to the fear and indeed the practice of what was previously happening where companies were ascribing values to certain assets to minimise the impact on profits - and of course these values were far from being reality.
In the USA purchase price allocation has been an established fact of business for the last 20-plus years and valuation practices have developed on the back of this requirement - particularly providing advice as far as intangible assets are concerned. Whilst we are all familiar in this country with the valuation of real estate and personal property, what is unknown as a major business activity in the valuation world up until recently has been the valuation of intangible assets which can cover many many classes of assets. For instance most people when you talk about intangible assets will automatically say goodwill. Beyond that there are significant other assets such as: customer lists, computer software, trademarks, brands, patents: the list is enormous and all these assets need to be valued to determine what their 'fair value' is. We have become increasingly involved in this sector. At the moment the market is dominated by the major accountants - particularly as far as intangible assets are concerned - but we are now, through some marketing and without, being approached to deal with some fairly complex purchase price allocation assignments which whilst very interesting and fulfilling do present a lot of difficulties particularly with auditor scrutiny. The market is very immature in the UK and it will develop over the next few years.
JT: Bernard thank you very much for those various bits of insight. Do please leave us with a few words of advice in terms of the different subjects that we have covered for any of our customers that may wish to carry out an acquisition in 2012 and beyond.
BS: I think that - having spoken about capital allowances - in any acquisition that your customers are making they need to make sure that the sale contract clarifies what the vendors position is regarding capital allowances. Has he made a claim, has he not made a claim, is he entitled to make a claim? Don't sign anything until you have received the right level of advice. Even committing yourself to an amount which may then involve signing a joint election for tax purposes doesn't mean that you still don't have a claim because the vendor may, through ignorance or whatever other reason, not have claimed for certain items which he was entitled to do so. So check it out, take advice.
The other area that always causes me a great deal of surprise particularly when people are borrowing money to buy a property is that they never consider what should be the amount that they insure the building for. From the lenders perspective this is highly important and shouldn't be dealt with as nothing more than an add on to the general practice surveyors report on the market value of the building. The reinstatement cost of buildings for insurance purposes needs careful consideration for the issues of VAT, professional fees, is the building listed, what special features are there, what is an adequate insurance amount for this building in relation to policy terms. So, again, my advice would be always seek more detailed advice than you might normally consider.
Just returning to IFRS3: customers must understand that this is a mandatory requirement now irrespective of the type of business you are acquiring. It doesn't just relate to manufacturing concerns and the requirement is there to allocate the price paid between tangible and intangible assets. Specialist firms are now developing their services to embrace intangible assets as well as tangible and you should seek advice at an early stage of any transaction that you intend on carrying out or have carried out.