The first tier tribunal case looks at the supply of temporary staff.
Reed Employment operated as an employment bureau that supplies temporary staff. The case looked at whether VAT was due on the full value of a supply or just the commission.
Prior to the removal of the staff hire concession (1 April 2009) VAT on the supply of temporary staff was only on the gross commission. When the staff hire concession was removed and the introduction of the Conduct of Employment Agencies and Employment Businesses Regulation 2003 it meant that employment businesses acted as principle. Since 1 April 2009, employment businesses have been accounting for VAT on the full amount charged for temporary staff.
The judgement stated that HMRCs approach was wrong. It went one stage further and stated that you cannot only look at the agent or principle situation, it is not sufficient enough in determining the VAT treatment.
The judgement reviewed the level of control passed over to the business hiring the temporary staff. Control was only passed over once an assignment was accepted by staff and at that time the control was passed over to the hiring business. In addition, payment made to staff by Reed Employment was made on behalf of the hiring business for the staff's service to the hiring business.
This decision potentially opens up the gates should you believe that you have wrongly charged output tax and are a business that cannot fully recover it. The effected industries are:
If you belong to one of these sectors and have been adversely affected by this decision you must consider submitting a protective claim to HMRC.
There was a small victory for HMRC; the judge allowed HMRC to utilise the unjust enrichment should it be proved appropriate in this claim for overpaid VAT.