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HMRC internal manual

VAT Health

HM Revenue & Customs
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Wholly performed or directly supervised: Direct supervision guidelines

We do not accept that direct supervision exists where a supervisor is introduced primarily to gain VAT exemption, and in practice carries out little or no supervision. There should be no third party between the supervisor and the supervised person. Indicators of a contractual responsibility for supervising unregistered staff might be found in the following documents:

  • contract of employment / services;
  • invoice for services supplied (if the supervisor is self-employed);
  • letter or other written agreement;
  • insurance policy (is the supervisor indemnified against the actions of unregistered staff or only for their own shortcomings?).

The services performed by the unregistered person must require supervision. For example, we would not accept there was a legitimate need for direct supervision by a registered optician where neither sight testing, nor the fitting and supply of contact lenses, nor the dispensing of spectacles took place.

The supervisor should be able to demonstrate that they proactively monitor the work of unregistered staff. A simple declaration, made by the supervisor, stating that they directly supervise unregistered staff will not suffice. Officers should consider the procedure followed for each kind of patient the business treats, establishing at what stages the supervisor intervenes to direct or monitor the work of the unregistered staff and whether the supervisor keeps any record of the checks performed. If there are no monitoring systems in place, how does the supervisor know that the work carried out by unregistered staff is satisfactory?

The supervisor need not always be the same individual - a team of registered personnel might rotate the supervision of unregistered staff amongst themselves.

Guidelines for determining when services are directly supervised appear in Notice 701/57 section 5. The guidelines are not the law, but our interpretation of it. The words “directly supervised” are not defined in the VAT Act, so a tribunal would consider their ordinary, everyday meaning. When deciding whether services are “directly supervised” it is important that officers consider two questions:

  • Does the level of supervision meet our guidelines?
  • Is there “direct supervision” in the ordinary sense of those words?

If the answer to both is “no” then there is no “direct supervision” and VAT exemption should be refused. If the answer to the first question is “no” and the answer to the second is debatable, you should look at all the facts of the case and consider whether the guidelines that have not been met are significant in the context of the individual business. (Guideline 1 is always significant.)

If the guidelines are met you should accept that direct supervision takes place and the professional services supplied by unregistered staff are exempt.