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Cost of supplying locum doctors and care workers set to soar

New tax rules will lead to a massive increase in the cost of supplying temporary workers to certain sectors, the REC said today (Wednesday August 6th).   

The REC’s analysis finds that the Government’s changes to the VAT treatment of temporary staff, which will result in VAT of 17.5 per cent being charged on the wages of temporary staff, will hit the charity, social care, education, social housing and financial services sectors the hardest. 

The new VAT arrangements were announced in the Budget earlier this year and are set to come into effect in April 2009. Key findings reveal the impact will hit:

• Health care sector: costs will soar as VAT is charged on the wages of locum doctors and specialist medical staff supplied through agencies.
• Charities: one charity has estimated the cost at £1.6 million a year.
• Social Housing: it is estimated that the cost to the sector could be £135 million.
• Further education: the annual cost to English Colleges could be £20 million.
• Financial services sector: the cost to investment banks is estimated at £50 million and in the retail banking sector over 25, 000 jobs are caught up in temporary staffing. 

 Commenting on the changes, Anne Fairweather, Head of Public Policy at the REC said, “The REC is not convinced that HMRC has correctly estimated the cost of the removal of this concession to these sectors.  Evidence from the affected sectors suggests that the cost could be to the tune of £400 million.  This will have a dramatic impact on the supply of staff to work with some of the most vulnerable in society.  The removal of the concession will also reduce flexible working opportunities in the financial services sector at a time when it is under great strain.” 

Fiona Coombe, Director of Professional Services at the REC continues: “We have been taking specialist advice to seek solutions for the affected sectors.  We are keen to work with HMRC to find viable solutions which are in line with VAT law but also result in the affordable supply of vital flexible staffing.”