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THE VAT status of charges made by recruitment agencies to clients who employ temporary workers has been left uncertain following a new ruling from the First-tier Tribunal.

A decision in the case involving Adecco, which relates to claims for output tax (VAT) potentially overpaid on non-employed temporary workers it introduces to its clients, contradicts a previous case.

Adecco had accounted for output tax (VAT) on the full amount it received from its clients, most of which it passed on to the temporary workers as wages, but Adecco believes it should only account for output tax (VAT) on the commission it retained for introducing those temporary workers.

The First-tier Tribunal (FtT) found that the temporary workers supplied their services to Adecco and not directly to the clients. On that basis, Adecco was supplying the temporary worker services to its clients and not simply introductory services.

However, the FtT has reached a decision which contradicts the judgment of another Tribunal involving Reed Employment Ltd. The FtT judge in this Adecco case acknowledges that will mean that this latest decision will likely be appealed.

Within the Adecco judgment it describes an alternative contractual scenario where a temporary worker contracts directly with and is paid directly by the client, with Adecco only being paid a commission for its introductory services. Here, HMRC accept that the supply of the temporary workers' services are directly to the client and Adecco is only liable for output tax (VAT) on its commission. The FtT also agreed with this VAT analysis.

Who is potentially affected?
VAT-averse users of non-employed temporary work (for example, partly or wholly exempt organisations such as, charities, education establishments, housing associations, health care, financial and insurance service entities).

How can VAT Services (Scotland) Ltd help you?
To assist your business or organisation with reviewing its own contractual arrangements for non-employed temporary workers.

Additionally, those affected businesses or organisations should contact their employment agency providers confirming that they are seeking a VAT repayment from them for any output tax (VAT) that has been overcharged in the event that Reed Employment Ltd, or Addeco, is ultimately successful in proving that output tax (VAT) should only be charged on an agency's commission. That is, the employment agencies, themselves, should already be making and renewing protective VAT claims to HMRC to ensure that their own entitlement to VAT repayments does not go out of time under the 4-year VAT capping provisions.

Contact us

Should you wish further information on the above, please do not hesitate to contact Gary using the details outlined below.


Gary Moore
Direct line 0141 636 9353
Mobile 07812 061 582
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