VAT and the supply of temporary staff

The case concerned the supply of temporary staff by Reed Employment Ltd and argued that the temporary staff they supplied was not a supply of staff. This would mean that VAT was only due on the introductory commission and not on the total consideration.

In normal circumstances in determining whether an employment bureau is acting as an agent or a principle the first point of call is the contracts. The judgment stated that looking at the contracts ‘… they might not be determinative’.

In reviewing the contracts, the overall objective of the transaction needs to be considered and it was determined that the objective and the economic reality was that Reed supplied introductory services and ancillary services. The fact that payment was made by Reed to the temporary worker was not determinative, which contradicts HMRC’s guidance as detailed below. The payment was made by Reed on behalf of its client for consideration of the supply made by the temporary worker.

HMRC does not like the judgement and has stated its usual stance:

‘As a judgment of the FTT Reed is only binding on the parties to the appeal. It was decided on its specific facts which involved an historic claim and concerned tax periods up to 1996.’

This judgement went in the opposite direction of the Hays Personnel Services Ltd (LON/95/2610), which determined that Hays Personnel Services Ltd were acting as principle and therefore the VAT was due on the whole of the consideration.

HMRC issued VAT Information Note 03/09 in 2009 and stand by the details provided in that note. This stated the two types of VAT treatment:

• where an employment bureau acts as an agent VAT is accounted for on only the commission
• where an employment bureau acts as principle VAT has to be accounted for on the whole consideration, including temp wages and employers national insurance contributions.
  
  

HMRC considers where staff of an employment bureau retains staff under either a contract of services or self-employed basis then any onward supply of this staff is a supply of staff as principle. Therefore VAT is due on the total consideration and not just on an introductory fee.

HMRC considers the agent situation only arises when the employment bureau tries to find work for individuals or clients and where:

• there is a clear contractual relationship between the individual and the client
• the bureau does not pay or arrange payment for the individual.

If both of these conditions are satisfied then there is an agent situation and VAT is only due on the introductory commission.

It would be worth viewing the judgment if your business or clients’ business is with the employment bureau industry and supply temporary staff to businesses that find it difficult recovering the VAT charged. 

HMRC has not yet appealed, so there may be more movement on this issue in the future; currently there are not encouraging businesses to submit claims following this judgement.

For further details please view Revenue & Customs Brief 32/11.