The IR35 personal service company legislation has been on the statute book since 2000 and has never really worked as intended.

The main reason for this is that the interpretation of the legislation is based on the same employment status tests referred to above, which lack clarity and are open to interpretation by the courts.

However, HMRC have recently won a key case on IR35 at the First Tier Tribunal concerning the BBC presenter Christa Ackroyd.

Ms Ackroyd had been supplying her services to BBC through her personal service company Christa Ackroyd Media Services Ltd since 2006/07. The Tribunal agreed with HMRC that the hypothetical contract between the BBC and Ms Ackroyd would have been a contract of service. The existence of a seven-year contract meant that Ms Ackroyd’s work at the BBC was pursuant to a highly stable, regular and continuous arrangement. It involved a high degree of continuity rather than a succession of short term engagements. That is a pointer towards an employment contract.

Another key factor considered by the court was that her fellow presenter on “Look North” was on the BBC payroll. Ms Ackroyd’s company was appealing against demands for some £419,151 from HMRC relating to income tax and National Insurance contributions (NICs) for the tax years 2006/07 to 2012/13. It will be interesting to see if there is an appeal to a higher court and whether this decision will be used by HMRC against other BBC presenters and other personal service companies.

Please contact us if you wish to discuss whether or not the employment status or IR35 rules impact on your working arrangements.


Mobile Device Management

Bring your own device (BYOD) policies have become increasingly popular in the last number of years. However, this has meant small and medium sized businesses have faces new challenges in terms of how to manage company data held on the personal devices of employees.

In addition to security concerns, BYOD makes it very difficult for businesses to maintain consistent standards across various devices and platforms. As such, updating company software can become a challenge. Large enterprise-level businesses manage these logistical challenges through high-level Mobile Device Management (MDM) solutions. However, until recently, these systems were prohibitively expensive and were generally out of reach for small to medium sized businesses.

Recently, major tech companies have moved to bring MDM solutions within reach of smaller businesses. For example, VMware recently joined forces with Dell in order to bring is class leading MDM services to small and medium sized businesses. For firms that don’t have in-house IT support, Microsoft has recently launched a new version of Microsoft 365 Business, which has built-in MDM features that are easy to set up and don’t require much on-going maintenance.

These solutions offer key business tools such as the ability to remotely wipe lost devices, instantly roll out updates across numerous devices and manage permissions across your company’s network.

Self-employed? Or an employee?

Most of the people working for organisations such as such as Uber, Amazon, Hermes and Deliveroo are not on the payroll, have limited workers’ rights and are paid for each delivery or “gig”. The Committee recommended a default assumption of “worker” status, rather than “self-employed”. The economist Mathew Taylor was also asked to produce a report on the status of such workers and suggested that a new category of “dependent contractor” should be established.

HMRC and the Treasury have now published a consultation into a thorough review of employment status.

Consultation on employment status
HMRC published a consultation on employment status on 7 February as a follow up to the Taylor Review of Modern Working Practices. Individuals and their employers have to know which employment status applies to ensure the right protections are applied – from the National Minimum Wage and holiday pay, to unfair dismissal protection and statutory redundancy pay.

Employment status also affects the taxes that an individual and their employer pay. It is therefore essential in maintaining a clear and effective tax base, with individuals and employers knowing what rates of tax and National Insurance contributions (NICs) are applicable to everyone in their organisation.

The existing legislation defining an employee for both tax and employment rights ultimately relies on whether a contract of service exists. No further definition or clarity is provided in the legislation.

As a result, over time the courts have interpreted the legislation and developed tests to determine an individual’s employment status. These tests are contained in a number of key precedent cases, including a mixture of employment rights and tax judgements.

A possible solution suggested is to legislate a more detailed definition of employment incorporating the irreducible minimum core tests established by case law:

  • Mutuality of obligation
  • Control over the individual
  • Personal service

Difference in VAT recovery between petrol, diesel or electric cars?

There is no difference in the VAT recovery position for the purchase, or indeed the lease, of electric, diesel or petrol fuelled vehicles.

For most businesses input tax recovery on the purchase of a car is blocked; there are however a few exceptions.

VAT incurred on the purchase of a car is only recoverable in the following limited circumstances:-

  • Where the car will be used exclusively for a business purpose i.e. is to be used only for business journeys and not available for private use of employees or anyone else.
  • On the purchase of a qualifying car intended to be used primarily as a taxi, driving instruction car, or self-drive hire car
  • Where the car is a stock in trade of a motor manufacturer or dealer

Further details on the above points can be found in Section 3 of VAT Notice700/64   Motoring Expenses.

There is a common misconception of the phrase ‘qualifying car’, even among some car dealers, as we have heard anecdotally. A qualifying car is a car that has not been subject to the full input tax block; not a car that qualifies for input tax recovery. HMRC consider that a car is available for private use “when there is nothing preventing you or your employee from using the car for private use.” The fact that a car is bought for the purpose of a business is not the only requirement; the business needs to have taken steps to ensure that the car is not made available to anyone for private use, and there is significant case law on this matter.

Where a business leases a qualifying car, 50% of the VAT on the leasing charge is blocked (and therefore irrecoverable) to cover private use of the vehicle. The limited circumstance detailed above, i.e. exclusive business purpose, stock in trade, qualifying taxi/self-drive hire use etc. apply in the same way to leased cars as to the purchase of a car, and where these apply, VAT is recoverable in full on the leasing charge, subject to the normal rules.

Where a separate charge is made for the maintenance of the leased vehicle, the VAT on that element is not included in the 50% block, and is therefore recoverable in full.

For completeness, the definition of a car for VAT purposes from section 2.1 of the Notice is reproduced below-

“A car for VAT purposes is any motor vehicle of a kind normally used on public roads which has 3 or more wheels and either:

  • is constructed or adapted mainly for carrying passengers
  • has to the rear of driver’s seat roofed accommodation which is fitted with side windows or which is constructed or adapted for the fitting of side windows

Section 2.2 however advises that the following exceptions are not cars for VAT purposes:

  • vehicles capable of accommodating only one person or suitable for carrying 12 or more people including the driver
  • caravans, ambulances and prison vans
  • vehicles of not less than 3 tonnes unladen weight
  • special purpose vehicles, such as ice cream vans, mobile shops, hearses, bullion vans, and breakdown and recovery vehicles
  • vehicles with a payload of one tonne or more

NB. The payload exception is the one that allows double cab pick-ups meeting that condition to be treated as commercial vehicles for VAT purposes rather than cars.

Negative Earnings

There are circumstances where someone may sustain an employment income loss in any given tax year.  For example, this may be due to the clawback of a joining-on fee or a bonus payment if conditions to the payments have not been adhered to.


  • A Limited offers employment to Mr. X for a £40k per annum salary and to incentivise him to join the business he also offers him a joining-on fee of £100k
  • The terms of the joining-on fee have clawback provisions included in them if Mr. X does decide to resign within 5 years of joining the business
  • Mr. X decided the role was not for him and chooses to leave the business after 12months, thus failing to meet the conditions of the joining-on fee. Mr. X has to repay £80k in the year of departure
  • In the year of departure, Mr. X has negative net taxable earnings for the year of minus £40k (£40k salary less (£100k x 4/5) = -£40k)

Loss relief may be available under section 128 ITA 2007, to be given by set-off against general income of the current and/or prior tax year.  So for example, if Mr. X has rental income of £15k and dividends of £10K, he may use the negative £40k to offset against these streams of income for the current and/or prior tax year.  Note that although this may waste his personal allowance, it may still be the favourable option to go with, as any unused loss cannot be carried forward.

SDLT Transfers to Limited Companies

Holding a buy to let property via a limited company can be an attractive way of holding property.  Lower rates of corporation tax and full mortgage interest deductions apply following the changes to interest relief for individual landlords.

There have been changes to stamp duty land tax and as such it has become an area that should be given more than a mere thought.  Here we are looking at the SDLT implications of property transfers in England, Northern Ireland, and Wales.  Transfers of property in Scotland will be subject to land and buildings transaction tax, and from 1 April 2018, property transfers in Wales will be subject to the land transaction tax.

Where an individual is transferring a property to a connected limited company the following should be considered:

  • The consideration is deemed to have been payable at no less than the market value of the property. The SDLT cannot be reduced if the transfer is for nil consideration or at less than market value.  There are no rules relating to gifts etc.
  • The additional rates of 3% will apply to all residential property acquisitions made by companies.
  • If the transfer to a company comprises a mixed-use property i.e. residential and commercial, then the mixed-used rates apply.
  • If two or more properties are transferred to a company, then it may be possible to make a claim for multiple dwellings relief. This relief calculates the SDLT payable by reference to the average value of the properties transferred.
  • The higher SDLT rate of 15% applies where a company acquires a single dwelling interest valued over £500,000 unless for qualifying business purposes. Relief is available where the properties are held as a buy to let investments though further SDLT may become due if there is a change of use within three years.

Based on the above a thorough review of the SDLT implications should be made before any legal or beneficial transfers of property take place as transactions of this nature can deliver surprising results!

Commercial Service Charges

Service charges for commercial buildings are sometimes for separate supplies with their own VAT liability and sometimes treated as additional consideration for the building so that the treatment follows that of the rent.

For business rates it depends on who is the rateable person; if this is the landlord and he simply recharges a share to each tenant to cover his outlay, with or without a profit element, then it is treated as additional consideration for the building and follows the rent.  Hence a charge for ‘Rates’ could be exempt or standard rated depending on whether a landlord had opted to tax.

The same rule applies to insurance where the landlord is the insured person and he simply passes on a share of the cost to the tenants; this is commonly the case with a landlord’s buildings insurance.

Gas and electricity are treated as separate supplies either at the standard or reduced rate (depending on usage) where each tenant has a separate meter.  However, if they are not separately metered, the onward charge is additional consideration for the building.

Where, under the terms of the lease, a service charge is imposed to cover to cover the upkeep of communal areas, this follows the treatment of the rent. However, if a tenant pays to have specific work done to his designated part of the building such as cleaning or decorating, this will be a standard-rated supply.