VAT tribunal decision – REC response

Filed under News update

Friday, 15 April 2011

Released on 15 April 2011

A decision this week by the first-tier Tribunal could have implications for the tax treatment of recruitment companies supplying temporary workers. However, it is likely that HMRC will be appealing this decision and there is no need for agencies to take any action at present.

In the case between Reed Employment and HMRC, the tribunal found that the recruitment company should only have had to charge VAT on the commission for finding a temporary worker, and not on the actual wages paid to the worker.
This was the legal interpretation that was applied until 2009, under what was known as the ‘staff hire concession’. The risk is that recruiters providing temporary workers may be seen to have charged their clients too much tax for the last two years. The ruling may particularly affect clients unable to recover VAT they incur, such as financial services, insurance, education and healthcare businesses, and charities.

REC Solicitor and Commercial Advisor Lorraine Laryea says:

“HMRC may yet appeal this this decision, and we will of course be monitoring the situation closely. Our immediate priority has been to consult with tax experts as well as other business organisations. This is a complex area and we need to fully understand the possible ramifications and likely next steps before considering any specific actions. We will continue to keep our members fully informed and we will be circulating an update based on our discussions over the next few days.”


Contact: Ed Sexton

Phone: 020 7009 2192

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