Budget 2008 - HMRC withdraw the staff hire VAT concession
The Issue
From 1 April 2009 the current concessionary VAT arrangements allowing employment businesses to charge VAT solely on the commission element of their supply, rather than on the whole cost to the client of placing the temporary worker (including salaries, NICs, pension contributions and other benefits) will be withdrawn.
The current concessionary VAT arrangements apply to employment businesses supplying their own employees or self-employed workers whose services are in turn supplied on to a client.
The Consequences
The change will impact on all employment businesses currently using the concessionary arrangements.
It will have greatest impact on the supply of temporary workers to banks, other financial institutions, charities, private hospitals and care homes which cannot reclaim the VAT charged to them for whom the cost of temporary staff will increase significantly.
Even those businesses able to recover VAT will suffer the cash flow disadvantage caused by the need to make that reclaim.
The Solution
Planning for the change will be key to the effective management of the increase in cost.
Employment businesses should warn clients at an early stage that the concession will be withdrawn.
Providers and hirers need to agree adjustments to their contracts and to alter business plans.
Employment businesses will need also to budget for the extra cost of changing their invoice systems.
The Recruitment & Employment Confederation will be taking up their concerns about the change with HMRC but a restoration of the current concession looks unlikely.
Information in this e-alert is a guide only. We recommend that you seek professional advice before taking or refraining from any action. No liability accepted by the firm for any action taken or not taken as a result of this publication.