VAT Treatment of Temporary Staff - Adecco decision

5th January 2016

The First Tier Tribunal decision in the case of Adecco UK Ltd is the latest chapter in a long running saga on the VAT treatment of supplies of temporary staff.  HMRC currently take the view that temporary staff agencies have to account for VAT on the whole of the value of the supply including the wage paid to the temporary worker.  The recruitment industry argue that they should only have to account for VAT on the commission element, not the whole value of the supply.

Reed Employment Ltd were successful with this argument in the First Tier Tribunal back in 2011 however HMRC sought to limit the impact of that decision only to Reed.  On the back of that however Adecco submitted their own claim which was duly rejected by HMRC and was appealed to the Tribunal.

Adecco’s argument was that the economic reality of the contracts was that it provided a service of introducing candidates for temp roles to its clients.  Thus the element of the charge that related to wages was not consideration for any supply made by Adecco. 

The Tribunal has dismissed Adecco’s appeal and held that Adecco was liable for VAT on the whole amount, including the wages.

One factor in the decision is that there is no contractual relationship between the client and the worker. 

Given that this case has reached a different conclusion from the earlier Reed case, there may be further litigation on this matter.  Clients who employ temporary staff via agencies (particularly those who cannot reclaim VAT in full) might want to ensure that their position is protected as far as possible in case there is ultimately a successful outcome.

To discuss your options in further detail, please contact your usual contact at Centurion or Julie Rawlinson-Smith on 07805 134091 or julie.rawlinsonsmith@centurionvat.com  

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