Check Employment Status For Tax – The End Client View

HMRC have launched its ‘Check employment status for tax’ for those concerned about IR35 cases.

We had a play from the end users point of view and answered the questions as follows:

  1. Which of these describes you best? – The End Client
  2. Has the worker already started this particular engagement for the end client? – No
  3. How does the worker provide their services to the end client? As a limited company
  4. Is the worker or their business an office holder for the end client? No
  5. Would the end client accept the worker’s business sending someone else to do this work instead? Yes
  6. Would the worker’s business have to pay the person who did the work instead of them? No
  7. Can the end client move the worker to a different task or project than they originally agreed to do? No – that would need to be arranged under a new contract or formal agreement
  8. Once the worker starts the engagement, can the end client decide how the work is done? The worker and other people employed by the end client agree how the work needs to be done
  9. Can the end client decide the schedule of working hours? The worker decides their own schedule
  10. Can the worker chose where they work? Partly – some work has to be done in an agreed location and some can be done wherever the worker chooses.
  11. What does the worker have to provide for this engagement that they can’t claim as an expense from the end client or agency? Materials – items that form a lasting part of the work, or an item bought for the work and left behind when the worker leaves (not including stationery, and most likely to be relevant to substantial purchases in the construction industry).  Equipment – including heavy machinery, industrial vehicles or high-cost specialist equipment, but not including phones, tablets or laptops.  Other expenses – including significant travel and subsistence (not including commuting) or the cost of a business premises outside the home.

Unsurprisingly the intermediaries legislation does not apply to this engagement.

HMRC say it will not keep a record of this transaction for security reasons.  Do you believe them?  Are they tracking your IP address?

HMRC say it will stand by the results given unless a compliance check finds the information provided isn’t accurate.

HMRC say it won’t stand by results achieved through contrived arrangements designed to get a particular outcome from this service.  This would be treated as evidence of deliberate non-compliance with associated higher penalties.

HMRC can review your taxes for up to 20 years.

Obviously the best thing to do is check for yourself and don’t leave it to your agent as they will not necessarily know the ins and outs of your engagement.

Make sure the end client, the worker and the agency are all singing from the same song sheet….

Long service award or rewards?

I have been told it is possible to give an employee £1,000 tax free in recognition of long service. Is this correct?

No, but it is possible to make tax free non-cash awards to employees with no less than 20 years’ service provided the value of the award does not exceed £50 for each year of service for which the employee is being rewarded (which is probably the source of the £1,000 figure you were given). This rule does not apply if there has been a previous award by the same employer in the previous ten years.

In broad terms, the award may take the form of tangible moveable property, shares in a company which is, or belongs to the same group as the employer or the provision of any other benefit except cash, cash vouchers, credit tokens, securities or shares other than those previously described.

Supply of Intermediary Services

Mr Jones has recently arranged for a UK business to supply consultancy services to a business in the USA and he will be invoicing the UK business for his commission imminently. I understand that the place of supply for intermediary services is where the customer belongs and so, as Mr Jones’s customer is in the UK, he should charge UK VAT. However, the customer has indicated to my client that no VAT should be charged as the supply is zero-rated. Please could you clarify the position?

You are correct in your understanding that intermediary services fall under the general rule in respect of the place of supply rules and so the place of supply is where the customer belongs when supplied to another business.

However, if you act as an intermediary and the place of supply of your service is the UK, but the place of supply of the service being arranged is outside the EC, your supply can be zero-rated. The legal reference for is Item 2(c) to Group 7 of Schedule 8 of the VAT Act 1994.

This means that your Mr Jones’s supply can be zero-rated because the place of supply of the consultancy service from the UK business to the business in the USA is outside of the EC (consultancy services are also supplied where the customer belongs when supplied to another business). Thus your Mr Jones is arranging a supply of services that is made outside the EC.

The implementation of the VAT package on 1st January 2010 was intended to simplify the existing rules for businesses selling services to overseas customers and buying from overseas suppliers. Despite the intention, the new rules are full of subtle intricacies and anomalies, similar to the one explained above, and there are many other matters for businesses making cross border supplies to contend with including invoicing obligations and EC sales lists. Businesses and their advisors need to be aware of when things are not as straightforward as they seem. Without knowledge and awareness of these issues and with the added risk of penalties mistakes can prove costly.

Tax Relief For Chiropractor?

Mrs Smith is a self-employed cellist. She suffers from back pain which is made worse by long periods of sitting still, particularly during concert performances, so she pays for regular visits to a chiropractor. Are the costs of treatment deductible from income for tax purposes?

The Courts were asked to consider a similar case of a professional guitarist who paid to have medical treatment on a finger injury which was preventing him from playing. His costs were found not to be allowable because he also played the guitar as a hobby so there was “duality of purpose” and he failed the “wholly and exclusively” test.

It seems likely Mrs Smith also fails the wholly and exclusively test since, presumably, one of the purposes of paying for the treatment is to enable her to enjoy other non-business sedentary activities.


No matter what type of business you run, mistakes will happen. All employees make mistakes. However, the key to resolving the situation when things don’t go to plan is to manage your team and the actions they take, effectively.

When things go wrong, stop and analyse the situation. How big is the mistake? Is it one that should not have been made but can be rectified? Or did it cost your company hundreds of thousands of pounds?

If a team member makes a mistake, hopefully they will own up to it. If not, you may have to raise the issue with them. The key at this point is to communicate clearly and in a professional manner. There is no point getting angry and shouting at people. Instead you should outline your expectations. Discuss the mistake with your team member and ask them what they think they can do to rectify the situation. Outline that the most important thing right now is to come up with an effective remedy rather than pointing out whose fault it was.

If the mistake is a one-off occurrence, you should outline to your team member that the main thing is to learn from the experience in order to avoid it happening again. If the team member in question has made various mistakes in the past and it is becoming a regular issue, then perhaps it is time to consider getting HR involved. Maybe the individual is making regular mistakes because they aren’t properly qualified for their job or perhaps they just aren’t suited to their current role.

As a manager, you should think about what type of leader you are and what you want to accomplish. Do you want your team members to be scared of you or do you want to encourage them and support their actions? As a manager you can’t be their friend but you can be supportive. A supportive manager will use mistakes as a learning opportunity for the team.

If your firm’s current culture for handling mistakes is not one that encourages learning or growth, it might be time to update your strategy. The best modern businesses use mistakes as an opportunity to step back, look at a process and find a better way of doing things. This type of approach helps to identify best practice, minimise the chances of similar mistakes happening again and may even create a better, more efficient way of managing parts of the business.

VAT on a Going Concern

Mr Smith purchased the freehold of a tenanted commercial property five years ago for £550,000. The seller had opted to tax (OTT) the property and so Mr Smith also OTT the property and provided the necessary anti-avoidance declaration so that the sale could go through without VAT being charged as a transfer of a going concern of a property rental business (TOGC). The tenancy agreement has now come to an end and Mr Smith has found a buyer for the property. However, the purchaser has advised him that he cannot charge VAT as they intend to convert the building into flats and have issued a VAT 1614D certificate. Please can you advise me if this is correct and explain how it will impact on Mr Smith?

It is correct that there are certain circumstances where the purchaser of a commercial property can dis-apply the vendor’s OTT, such as where the purchaser certifies that the building is intended for use as a dwelling or solely for a relevant residential purpose.

The purchaser should issue a certificate before the price for the grant is legally fixed (for example by exchange of contracts) in order for the vendor to treat the supply as exempt. Further details on the procedure can be found in Public Notice 742A Section 3.

Although Mr Smith acquired the property without VAT as a TOGC, the property may have been a capital goods scheme (CGS) item in the hands of the previous owner. The CGS applies to VAT bearing capital expenditure on land and buildings of £250,000 or more.  If a capital item is transferred as part of a TOGC then the new owner assumes responsibility for adjustments of input tax required under the scheme for the remainder of the ten year adjustment period.

When acquiring a property as a TOGC the purchaser should therefore confirm with the vendor whether the property is covered by the scheme and details of the adjustments already made. If the purchaser remains fully taxable until the expiry of the ten year adjustment period, then no adjustments are required to be made. However, your client may find that he has to repay some of the input tax claimed by the original owner if they make an exempt supply of the property in question within the CGS adjustment period.


It seems there is a new way of doing business being created every week. Disruptive, technology driven, new business models are constantly being developed by the likes of Uber, Skype, Amazon and Air BnB.

Your business might hold an established position in the market today but that doesn’t mean that you and your management team can be complacent.

Disruption and commoditisation have impacted most industries and we are now seeing new players coming into traditional markets and establishing a disruptive model and capturing significant market share. This trend is only going to continue.

So what can you do, as the leader of your business, to minimise the impact of a potential disruptive new player entering your market?

It is difficult to constantly create new products or services. However, perhaps you could consider how best to commoditise some of your firm’s existing product or service offerings in order to increase profit margin and efficiency. This could also help you to improve customer experience – by making your services faster, easier to access and so forth.

When it comes to innovation, you don’t have to constantly re-invent the wheel. While creativity is usually associated with thinking outside the box, the fact is that few ideas are 100 percent original. The most brilliant (and often most profitable) business ideas are usually variations of an already existing theme rather than completely new concepts.

Netflix didn’t create a new industry. They just took the business model that had been so successful for Blockbuster Video and created a new way for customers to rent films – online instead of through a video shop. As Steve Jobs once said, “Creativity is just connecting things.” What sets creative people apart is that “they are able to connect experiences they’ve had and synthesize new things.”

If you want to embrace innovation in your business, you need to develop an environment that encourages creativity. Your staff should be empowered to explore new ways of delivering products or services.

Experimentation should be encouraged and your office should have collaborative workspaces in order to allow people to sit down together, work as a team, solve problems collectively and create new solutions.  In addition to this, your business should celebrate innovation through recognising those team members who find new ways of doing things. Whether that is a bonus for implementing a new innovation or perhaps celebrating the delivery of new innovations with a team night out. The key is to encourage your team to be creative, find new and better ways of doing things and keep innovating.

Share Pooling & Entrepeneur’s Relief

Mr Smith is a shareholder and director of a company which is due to be sold. Some of his shares have been owned for many years and qualify for entrepreneurs’ relief (ER) but a large proportion were acquired only a few months ago. If the shares are “pooled” much of the capital gain will be attributable to the later shares. Is there anything which can be done to avoid the loss of ER?

The qualification conditions for ER are considered by reference to the company whose shares are being sold and not to the shares themselves being sold. You have determined that ER is available because the conditions were met before the later acquisition of shares and continued to be met. The later shares do not have to be owned for twelve months. It is only necessary that the company was your client’s “personal company” throughout the twelve months preceding the disposal so the share-pooling rules do not prevent ER from being available against the whole of the capital gain.


Have you used your 2016/17 £11,100 annual capital gains exemption?  Consider selling shares where the gain is less than £11,100 before 6 April 2017. Also, if you have any worthless shares, consider a negligible value claim to establish a capital loss. You may even be able to set off that capital loss against your income under certain circumstances.

As far as inheritance tax (IHT) planning is concerned, all individuals have a £3,000 annual allowance which means that gifts up to that amount each year are exempt from IHT. If you haven’t used your £3,000 allowance from 2015/16 you can make gifts of up to £6,000 without the gift being liable to IHT.

Also, consider making regular gifts out of your income to minimise the growth of your estate that will be liable to IHT. Gifts out of your surplus income are not subject to IHT if properly structured.


Corporation Tax: Losses

There will be greater flexibility for relieving various types of loss which arise on or after 1 April 2017 and which are carried forward to a later accounting period. Such brought forward losses may be relieved against the company’s total income rather than specified classes of income. In addition, losses carried forward to a later accounting period will, in certain circumstances, be capable of being surrendered as group relief.

Corporation Tax: Substantial shareholding exemption

The condition that the investing company is a trading company or member of a trading group is to be withdrawn, as is the condition that the company being sold is a trading company or the holding company of a trading group, unless the disposal is to a connected person. Currently, a substantial shareholding must have been held for minimum period of twelve months starting not more than two years prior to the disposal. The two year period is to be extended to six years. These changes apply to disposals on or after 1 April 2017.

Inheritance tax: Deemed UK domicile

Non-domiciles who are long-term UK residents or who previously had a UK domicile and are resident in the UK will, from 6 April 2017, be treated as UK domiciled for income tax and capital gains tax purposes.

Employment status: Working for the public sector through intermediaries

From 6 April 2017 public authorities will have responsibility for determining whether the workers they engage fall within the intermediaries legislation (IR35). If the public authority decides the rules apply it will be required to deduct income tax and national insurance from the payments it makes to the worker or the worker’s intermediary. The new rules will also apply where work is completed before 6 April 2017 but payment is made on or after that date.