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Deep within the Budget Report the Treasury has announced that the staff hire concession will be withdrawn from April 2009. 

The concession has been in place since 1997 and permits employment agencies to charge VAT solely on the commission element of their supplies rather than on the whole cost of placing the temporary worker. 

This is vital for recruitment agencies supplying staff on a temporary basis to organisations such as banks, financial institutions, charities, private hospitals and care homes which cannot reclaim the VAT charged to them.

Fiona Coombe, Director of Professional Services at the Recruitment and Employment Confederation said on this matter:  “The REC has presented a great deal of evidence to HMRC on the impact of the withdrawal of this concession.  The regulatory impact assessment conducted by HMRC on this issue fails to assess the financial impact for the client organisations which will now have to find an extra £125 million a year to pay the VAT. 

"The cost of taking on vital temporary staff will rocket in sectors where they cannot reclaim the VAT charged to them.  This includes vulnerable sectors such as charities providing healthcare and social housing. 

"Within the NHS, it is also likely to cause a cash flow problem as charges will increase on placing locum doctors.  The cost of agencies to change their invoicing systems has also been woefully miscalculated. 

"This massive change will need to be explained to clients, an additional cost to the recruitment sector.  We will be taking up these concerns with HMRC.”   

To read the HMRC notice please click on this link: http://www.hmrc.gov.uk/budget2008/tn-withdrawal-staff-hire.htm