HMRC to disregard VAT on temporary workers ruling

THE TAXMAN will continue to apply VAT to the full amount invoiced by recruitment agents for the supply of temporary staff despite a first tier tribunal ruling that prevented it from doing so.

In March, a tribunal found that Reed Employment was entitled to charge VAT only to the commission element of its charges to clients, and not on the pay of its workers. HM Revenue & Customs did not appeal the decision.

However, a business briefing from HMRC has said that it considers the decision was decided on the "specific facts" of the case and "does not have any wider impact".

At the time of the first ruling, Accountancy Age reported comments from Hannah Dobson, VAT director at Smith & Williamson, that HMRC's decision to let the ruling stand without appeal was a "fantastic ploy" to interpret the ruling as it saw fit.

In response to HMRC's business briefing, a statement from Smith & Williamson said: "In the weeks which followed the decision, it became clear that the essential facts on which the Tribunal based its decision were common to many employment businesses.

"Employment bureaux have been under great pressure from clients in the health care, housing association, charity and financial sectors, for whom VAT is a significant cost, to change their charging policies in line with the Reed decision, and we understand that some have already done so.

"If HMRC was hoping to restrict the effect of the decision, its response has come far too late."