Following a report in Recruiter last week, in which staffing companies were warned of the possibility that end user clients may want to reclaim overpaid VAT if the decision in the Reed VAT case is upheld in test cases, ARC points out that it has been running a campaign for four years to try and persuade the government to reinstate the so called VAT staff hire concession.
Up until 2009 this concession provided staffing companies with no obligation to charge VAT on the whole invoice to the hirer, instead VAT was only due on its margin charge. The concession, which was abolished in 2009, meant charities and other non-VAT recoverable organisations such as schools, local authorities and the NHS saw their agency supply charges and their net costs rise overnight. This detracted from the use of agency workers’ which in turn limited flexibility in the workforce, and amounted almost to a penalty on those organisations that arguably need the savings the most.
The Reed decision challenged whether VAT is chargeable on the workers’ pay element. The report indicates a prospect that HMRC will be forced to concede that VAT is not correctly due on the workers’ pay element. As a result, some non-Vatable end users may well wish to recover the overpaid VAT from the staffing agencies that have supplied them, in which they will have 6 years to do this whereas agencies will only have 4 years to claim back the VAT from HMRC, causing a specific dilemma.
“Had the Treasury accepted ARC’s argument, staffing companies that have accrued the potential liability to repay overcharged VAT since 2009 would not now be in this position”, explained Marlowe. Pointing to the reinstatement of a VAT concession for the supply of certain NHS staff in 2010 he concluded “HMRC could reinstate further elements of the old staff hire concession, without offending general principles as it has done for the NHS”.
Marlowe added that this is just one example of campaigns that ARC has been running to head off issues that threaten the staff and contractor supply business. “We base all our campaigns on practicality and common sense. Take our campaign for example to limit an agency workers’ right to claim employment rights against an end user. How can a person who already has a set of agency workers’ rights as under the Agency Workers’ Regulations also be entitled to employment rights as against the hirer? Except in very specific circumstances, the two are mutually exclusive in our view. Recognition of this would serve to limit contradictory employment tribunal claims and help lance the boil of hirers’ concerns over employment claims. We are also running a campaign to limit pay when paid clauses in RPO arrangements, a source of friction for many businesses, large and small.”
“I invite all supply businesses to join our membership to add weight to our unique set of well researched arguments that are, after all, for the benefit of the entire industry”.
