How Much is an Affiliate Business Worth?

**SnowGirl** · 23-01-12

Without boring you with too much detail we are having some issues with HMRC.

When we incorporated into a company we had to out a value on the affiliate business at the time and we put this at 2 times net income (which seemed fair after much research). In fact I think we could have valued it higher.

Now we have received a letter from HMRC who are in the process of challenging this valuation. It states, "Rather than paying to acquire these websites in this situation, any individual with the necessary skills could surely set up their own operation from scratch".

What they are basically saying if that an affiliate business is worth nothing - even if it has been running successfully for years and making good profits.

I think the only way of arguing this case is if I can show that affiliate websites have been sold for 2-3 x income in the past - which I'm sure they have.

If anyone has any evidence of selling their own affiliate businesses for 2-3 times income and would be prepared to put this in a short letter for me I would really appreciate it. Please PM me. I don't think I would need specific facts and figures, just a basic "I sold my affiliate business in 2011 for 2 times net income" or something like that.

Just to clarify where I think the value is:-

accounts showing good profits
bespoke programming written specifically for my situation and affiliate business
unique CMS system written for my websites
keyword lists refined over period of years after spending a LOT of money!
ads and landing pages that have been split tested over a long period of time
merchant relationships and negotiated commission rates
large amounts of unique content
etc

Any other advice would be great :-)

**aero_mansoor** · 23-01-12

First of all highly doubt people are going to showing you their facts and figures for very obvious reasons. Secondly if what your saying is correct then it does not make sense, domains names alone can be worth a LOT of money. I am curious though as to why HMRC would even write this letter?

**dc000000** · 23-01-12

On that basis then most businesses are not worth anything and the entire financial system is built on pure fantasy? Every business can be valued on a multiple of earnings - irrespective of what that business is.

**alphawave** · 23-01-12

What they wrote sounds so naive. I think you need a letter from a lawyer or accountant who can verify that your websites have value.

**jonsp** · 23-01-12

Originally Posted by SnowGirl

Without boring you with too much detail we are having some issues with HMRC.

When we incorporated into a company we had to out a value on the affiliate business at the time and we put this at 2 times net income (which seemed fair after much research). In fact I think we could have valued it higher.

Now we have received a letter from HMRC who are in the process of challenging this valuation. It states, "Rather than paying to acquire these websites in this situation, any individual with the necessary skills could surely set up their own operation from scratch".

Without knowing the full details this doesn't sound like something the taxman would say, however a letter from a decent accountant should be all you need. Clearly any business is valued on a multiple of profits - do you say Coca Cola has no value because a decent chemist could just make their own fizzy drink :-) If you just want a quick example here's one from a well known affiliate
Sold! | Kieron Donoghue

**dc000000** · 23-01-12

Originally Posted by jonsp

Without knowing the full details this doesn't sound like something the taxman would say

Sorry, can't agree on that one - it's exactly what someone at hmrc would say.

**jonsp** · 23-01-12

Originally Posted by dc000000

Sorry, can't agree on that one - it's exactly what someone at hmrc would say.

That 2 times profit isn't a reasonable valuation for a business?

**dc000000** · 23-01-12

Originally Posted by jonsp

That 2 times profit isn't a reasonable valuation for a business?

No - this.......

any individual with the necessary skills could surely set up their own operation from scratch

**SnowGirl** · 23-01-12

Thanks for the advice. I am dealing with this via my accountant (it's part of a tax investigation) who assisted me in valuing the business at the time of the incorporation. In this case it seems that a letter from an accountant is not enough. They are also quoting Estibot.com using the domain values on there to help value a company! I put Kieron's domain name in there (the one he sold) and it was valued at around 250 dollars so on that basis they would argue that is the value of his website. It's crazy!

**bedazzledaz** · 24-01-12

Originally Posted by SnowGirl

Now we have received a letter from HMRC who are in the process of challenging this valuation. It states, "Rather than paying to acquire these websites in this situation, any individual with the necessary skills could surely set up their own operation from scratch".

Wow the revenue are so naive, would they say the same thing to Facebook investors? "Don't waste £250m on that just find someone with the skills to set up your own"

**Brigadoon** · 24-01-12

Originally Posted by SnowGirl

Thanks for the advice. I am dealing with this via my accountant (it's part of a tax investigation) who assisted me in valuing the business at the time of the incorporation. In this case it seems that a letter from an accountant is not enough. They are also quoting Estibot.com using the domain values on there to help value a company! I put Kieron's domain name in there (the one he sold) and it was valued at around 250 dollars so on that basis they would argue that is the value of his website. It's crazy!

Estibot.com value bbc.co.uk at $149,000! Joke amounts to be honest. My advice is to fight them all the way. I had the same problem last year and it was eventually resolved after 6 months to MY satisfaction. I'm guessing this is a capital gains tax related issue!

**cclayton** · 24-01-12

Originally Posted by SnowGirl

Rather than paying to acquire these websites in this situation, any individual with the necessary skills could surely set up their own operation from scratch".

What they are basically saying if that an affiliate business is worth nothing - even if it has been running successfully for years and making good profits.

Got to say I am astounded by this... I am going to have a look at jobs currently going at HMRC and the requirements if comments like this are coming from them, surely you have to be an idiot to say something like that?

So brand, unique code, customer databases, back links, rankings etc... mean nothing if someone can code. I would like a definition of necessary skills... as you could apply that to everything. Gobsmacked.com.

**SnowGirl** · 4 Weeks Ago

Just wanted to post an update on this one. Had a good result and hmrc finally agreed my company valuation. This is after much communication and having to explain many times what an affiliate business is and how it works! Just shows how naive hmrc can be and how misunderstood the affiliate industry is generally!

**dc000000** · 4 Weeks Ago

Good news - shame it took so long to explain something so simple.

**jezza101** · 3 Weeks Ago

Purely out of curiosity, why does it matter?

Does it make any difference to you (in terms of tax you pay or anything else) if they think it's worth 0 or a million quid? I

Thanks.