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Client connection: an elusive concept clarified

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HMRC v Smith & Williamson Corporate Services Ltd explores the distinction between the goodwill of a business (of which client connection is a vital component) and the often very close and loyal relationships which the employees of that business have with its clients. Goodwill is a capital asset in the hands of the person that owns and runs the business. Client connection in the hands of the employees is not an asset, because it consists of personal relationships. However, it can be turned to account by inviting the clients to follow the employees to a new employer and extracting a payment from the new employer for the provision of that service. Such a payment will normally be taxed as earnings, as it derives from the new employment.

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