The cost of hiring temporary staff set to increase
This concession allows employment agencies to account for VAT solely on their margin when supplying temporary workers. This reduced VAT cost benefits those exempt/partly exempt sectors who cannot recover all of the VAT they incur, e.g. banking and insurance, private healthcare sector, charitable and certain educational /public sector bodies.
The UK government decided to withdraw this concession following changes introduced by the new Conduct Regulations in 2004. The concession has also been used for tax avoidance purposes. An extended period of review and consultation of the impact of these changes then occurred.
With effect from 1 April 2009, VAT will become due on the full consideration received from the client. As such, partly exempt businesses which employ temporary staff will suffer an increased VAT cost.
The delayed implementation date is to allow businesses to deal with the impact of the change, e.g. contracts may have to be renegotiated/systems changed etc. HMRC will continue to discuss the impact of the change with affected businesses.
Not all employment businesses use the concession, although it is widespread amongst the largest players in the market. However, if you currently use temporary staff and are paying VAT on the margin, your VAT cost will increase from next year. If you are able to reclaim VAT in full, this will only represent a cash flow cost.
You should be discussing this issue with your temporary staff provider now.
Date: 3rd April, 2008
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