The Association of British Insurers has written to the Treasury urging it to reconsider the introduction of a VAT charge on temporary staff.

Alistair Darling announced the dropping of the ‘staff hire concession’ in the Budget, with the move set to hit in April 2009.

The ABI has formally requested the Treasury dismiss the proposal.

‘This is a critical issue, as financial firms are wholly or partly unable to recover VAT, and now is not the time to increase the cost of employment,’ said Hayley Slipman, financial regulation and taxation spokeswoman at the ABI.

The concession means that companies only pay VAT on the agency’s fee in employing a temp, and not the entire salary. Charities and the NHS are expected to be hit hard as well as financial services companies.

Slipman said the Treasury should acknowledge current market strains and the impact the VAT change could have on business. Budget figures estimate a Treasury haul of £150m in 2009, and £125m in 2010 as a result of the shift.