Removal of recruitment consessions to hurt firms

Hundreds of companies across the South West, including banks, insurance firms, healthcare institutions and charities, could be hit by an increased VAT bill if they use temporary staff.

Leading business advisory firm Deloitte has warned that HM Revenue & Customs (HMRC) decision to remove the Staff Hire Concession (SHC) from 1 April next year, will cost businesses in the region millions of pounds in additional VAT.

The SHC currenlty allows employment businesses, specialising in temporary staffing, to supply their employees as temporary workers to clients and only charge VAT on their commission or agency fees. This means that businesses classified as exempt, or non-busines clients such as charities, do not suffer a VAT charge on wage payments.

But Daniel Lyons, partner in the indirect tax team at Deloitte in Bristol, said " This latest change will result in a wide range of businesses in our region facing significant increased costs when using temporary workers.

"It will also have a considerable impact on the flexibility of the labour market as temporary workers will become much more ciostly than permanent employees."

The SHC was introduced in attempt to achieve a level playing field in the emporary worker's market. The Reed case in 1995 established that employement agencies, ie who had no contractual relationship with workers, would need to account for VAT in full, thereby distorting the market.

HMRC's view s that the Conduct Regulations introduced in 2003 required most providers of temporary workers to operate the same business model for the first time, ie contract with workers.

It therefore argues that VAT is legally due on all paymetns collected by these businesses and that there is no distortion in the market. For this reason, the SHC is redundant.