Current News

The REC met last week with senior HMRC and Treasury officials to once again take forward the concerns of the industry with regards to the withdrawal of tax concessions for the supply of temporary workers in April 2009.

 As you may be aware, the Government announced in the last Budget that from 1 April 2009, employment businesses will be required to charge VAT on all supplies of temporary staff, except where there are specific exemptions (such as those providing care to patients in their own homes).

This will affect all clients who are unable to recover VAT and who place reliance on temporary staff to maintain flexibility within their business e.g. in the finance sector, health and care sector, education sector, charities and parts of the public sector. At present, the concessions permit employment businesses supplying staff to employers who are unable to recover VAT to exclude VAT from the wages element of their costs.

Based on feedback received from both members and other trade bodies representing some of the affected sectors, REC estimates that the financial savings from the concessions for those clients is in the order of £400million.  

The concessions were originally introduced as a temporary measure in 1998 to maintain a level playing field between employment businesses. They are being withdrawn partly because changes to the legislation affecting employment businesses means that there is no longer a need for the concessions and partly because it is the view of HMRC that they are unjustifiable in terms of UK and EU VAT law.

The REC has consistently argued that, regardless of the validity of the concessions, there has been insufficient consideration of the impact on businesses providing support to some of the most vulnerable sectors of society as well as the beleaguered financial sector.

Our key message during last week’s meeting was that the timing of the withdrawal must be reviewed in order to find alternative measures that could be taken in relation to specific sectors affected.

The feedback from HMRC and The Treasury was that there was little likelihood of the withdrawal being postponed. However, the REC will continue to drive an intensive campaign on this issue and we are working closely with the representatives of the affected sectors such as the British Bankers Association, London Investment Bankers Association, CBI, Charity Finance Directors’ Group and Procurement for Housing to explore further options for alleviating the impact. 

Over the past six months, the REC has also been working with Deloitte and our members to consider whether the impact can be reduced by using alternative business models. We continue to explore this as an option but it is not clear yet whether any such models will reduce the burden of VAT and any changes will rely on the willingness of clients to adopt the model.

So such models as may exist will not provide a complete solution and members will need to make clients aware of the fact that VAT will need to be charged in full on the supply of workers from 1st April 2009.

HMRC has made it clear that any failure to charge VAT on temporary staff after 1st April 2009 in circumstances where VAT is chargeable and any attempts to avoid payment of VAT will be prosecuted. REC has commissioned counsel’s opinion on the validity of the argument that charging VAT on the wages of temporary staff may be contrary to principles of VAT law.  

Again this is not a view shared by HMRC and any legal challenge based on an interpretation of EU and UK VAT law will be vigorously fought and might not set the precedent we need even if it was successful. However, the REC will continue to look into the viability of this option as well as continuing to take forward a pro-active lobbying and media campaign.

As part of this, REC Chief Executive Kevin Green referenced the VAT campaign during an interview on BBC Radio 5 Live earlier today and we will continue to do everything possible to influence the Government’s position on this crucial issue for REC members in the affected sectors.

Members will be kept up to date with all developments. In the meantime, there is further information about VAT and the concessionary arrangements in the REC’s Legal Reference Guide at http://www.rec.uk.com/member-directory/legal/lrg/essential-law/paye_tax.