VAT: Withdrawal of the Staff Hire Concession
The current concessionary arrangements in respect of supplies of temporary workers by employment businesses will be withdrawn with effect from 1 April 2009. Currently such businesses are allowed to exclude the wages element from the supplies they make, and to account for VAT solely on their margin.
Who will be affected?
Employment bureaux who use the existing concessionary arrangements and any of their customers who are not able to fully recover the VAT charged to them e.g. finance sector, health and care sector, education sector, charities and some parts of the public sector.
The existing Staff Hire Concession was introduced in 1997 as a temporary measure designed to provide employment businesses with a similar VAT treatment to that enjoyed by employment agents who also paid workers directly. It was extended again at the end of 1998, pending the introduction of Department of Trade & Industry (DTI) regulations.
DTI introduced the Conduct of Employment Agencies and Employment Businesses Regulations 2003 (Conduct Regulations) to take effect from 2004. Customs & Excise, as was, consequently introduced a further related concession to maintain an equitable VAT treatment. Customs also confirmed that the concessionary arrangements would continue for a period of 18 months to allow sufficient time to fully assess the impact of the Conduct Regulations on the VAT treatment and the effect of withdrawing the concession. In June 2006 HMRC announced its review (in Business Brief 06/06) and invited contributions from all affected businesses and any other interested parties. A summary of these responses will be published on 1 April.
The existing concessionary arrangements are set out in Part A of the Statement of Practice contained in Notice 700/34, and in Business Brief 10/04.
Change in treatment
Following the introduction of the Conduct Regulations, changes were made which restricted the ability of employment agencies to make payments directly to temporary workers. This means that, where workers are paid directly by an employment bureau, the bureau will be acting as an employment business and a principal for VAT purposes. Now that the regulatory framework for this sector has been amended to ensure equal treatment for those operating on the same commercial basis, HMRC consider that this tax concession is no longer necessary. Furthermore, the concession has no basis in UK or EU VAT law and must therefore be withdrawn. Accordingly, VAT will be applied to all of the consideration employment businesses receive, including the wages element, in respect of the supplies they make.
HMRC recognises that different providers and hirers will be impacted in different ways, depending on the extent to which the additional VAT costs are passed through to hirers, and their ability to recover the VAT. As a result, the concession will not be withdrawn until 1 April 2009, giving over 12 months for providers and hirers to prepare for the change, and adjust their contracts and business plans accordingly. During this transitional period HMRC will be happy to discuss the impact of the change further with those in affected sectors.
An Impact Assessment has been published alongside the announcement in the Budget. HMRC will also be publishing a summary of responses document on 1 April 2008. If you have any questions about this change, please contact the National Advice Service on 0845 010 9000.