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Andrew Needham, Director of VAT Specialists Ltd, comments on the withdrawal of the staff hire concession.  

End of a long-standing concession

Further to HMRC’s original announcement in Budget 2008, and the reminder in Revenue & Customs Brief 08/09, the long-standing Staff Hire Concession was withdrawn from 1 April 2009.  It was introduced in 1997 as a temporary means of dealing with the distortion caused by the Reed Personnel Services case.  However, such was the popularity of the concession amongst hirers of temporary staff that could not reclaim VAT, (e.g., charities, banks, care providers), that it lasted for 12 years. 

How it worked

The concession worked by allowing temp agencies only to charge VAT on their margins, not on the wages and other statutory costs of the temps.  The withdrawal means that VAT is now due on the full hire charge, and increases the cost of hiring temporary staff in those sectors. 

Unsupported

Following the Budget 2008 announcement, intensive lobbying began to keep the concession, led by the Recruitment & Employment Confederation (‘REC’). Representations were made by the REC at the highest level to the Treasury and the Department for Business about the potential impact of this change to the charging of VAT. However, as HMRC stated in Revenue & Customs Brief 08/09, the concession was found to be unsupported in both UK and EU law, and for that reason alone, could no longer be maintained.

Deep concern

On 31 March 2009, Kevin Green, Chief Executive of the REC, made the following statement on the REC website:

"Implementing a tax on jobs is not a sensible move during a recession. We are deeply concerned that the Government’s decision to remove this concession will result in fewer jobs in the labour market. The REC has campaigned long and hard on retaining the concession, and we are now alerting recruitment agencies and their clients to the change, so that they can make the necessary adjustments and ensure that VAT is charged correctly on the supply of temporary staff from today.”  

It should be noted that two related concessions for secondment of staff at no profit, and the placement of disabled staff under the ‘sheltered placement scheme’, are unaffected by the withdrawal, and remain in place (see Notice 700/34 ‘Staff’ for further details).

Comment

Advisors of businesses operating in the affected sectors should ensure that their clients are aware of the withdrawal and its financial impact.