Could we see a reverse on VAT paid on temporary workers?

Charities could be spared an estimated £20m a year in VAT as a result of a decision by a recent VAT tribunal on the hiring of temporary staff.

The tribunal ruled that employers hiring temporary workers should pay VAT only on commission, rather than on the whole of their wages.

It is too late for the decision to be challenged by HMRC but they may be more successful in another case which could supersede the judgement. However, if it stands charities will benefit hugely since they employ many temporary workers and are unable to reclaim VAT, unlike most employers.

Ross Andrews of Wellers Accountants says: “It was a big surprise that HMRC didn’t appeal. The expectation now is that they will publish a Brief that will clearly set out the facts of the case and agree that the decision is binding where the facts are identical. They will then seek to distinguish other scenarios from the case in question. It could therefore come down to comparing individual contracts and processes directly with the brief when it is published.

“Although each case should be reviewed on its own particular facts, in general HMRC have required recruitment agencies to charge VAT on workers' salaries as well as their own margins. As charities can have difficulty fully recovering the VAT they are charged the cost of using agency workers can be very high for charities.

“To reduce the additional costs, charities might be able to vary their contracts with agencies and should also be aware that agency workers involved in the provision of care or welfare services could be exempt from VAT. It could also be worth employing permanent staff instead.

“If the judgement stands however, it could reverse this rule and restore the 2008 concession which exempted charities from VAT on temporary workers. The Charity Tax Group estimated the exemption was worth £20m a year.

"The HMRC are currently considering the effect of the recent judgment but if this stands, it’s worth many millions a year to the sector."
If you would like to be kept informed on this matter or would like to discuss it further please contact us through www.wellersaccountants.co.uk.

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