Recruiters should make protective VAT claims against HMRC

RA Now

Staffing companies may face potentially damaging VAT reclaim liabilities if a decision in an HMRC tax tribunal is upheld in future test cases.

The case involving Reed Employment dates back three years and found in Reed’s favour, that employment agencies should only have to charge VAT on their mark up for temporary and contact staff.

Staffing companies had been able to do this up until 2009, when the VAT Staff Hire Concession was abolished and end-user clients had to pay VAT on staffing companies’ whole charge.

But rumours of test cases following the Reed case could lead to clients in the finance, charity, health, insurance and public sectors – which are unable to reclaim VAT from HMRC – reclaiming the VAT they have ‘overpaid’ since the demise of the VAT Staff Hire Concession.

As staffing businesses can only reclaim VAT from HMRC for the past four years – since 2010 – they are potentially already “out of pocket” in relation to the VAT they may have to pay back to their clients, according to the Association of Professional Staffing Companies. This is because the end-users can claim back over a six-year period.

APSCo is calling on staffing agencies to be “prudent” and make protective claims against HMRC at the earliest opportunity.

“While we acknowledge that protective claims will require a level of resource to collate the information and be costly, dependent upon the level of exposure, the consequences of not doing so could be far more detrimental,” said APSCo’s head of external affairs, Samantha Hurley.

“We feel that it is wholly unfair that recruitment firms that have been following the law and the advice of HMRC are now in this position of having a potential liability that they will be unable to reclaim,” she added.

The Association of Recruitment Consultancies has been running a campaign for four years to persuade the government to reinstate the VAT Staff Hire Concession.

The abolition of the concession “meant charities and other non-VAT recoverable organisations saw their agency supply charges and net costs rise overnight”, ARC stated.

“This detracted from the use of agency workers which in turn limited flexibility in the workforce, and amounted almost to a penalty on those organisations that arguably need the savings the most.”

“Had the Treasury accepted ARC’s argument, staffing companies that have accrued the potential liability to repay overcharged VAT since 2009 would not now be in this position”, said Adrian Marlowe, chairman of ARC.