Ruling will not impact employment agency VAT rules, says HMRC

Though it lost its case against Reed Employment Limited it has said that because the ruling was from the First-Tier Tribunal it is not binding on other companies.

HMRC has published its policy on the VAT treatment of temporary workers in the light of the outcome of that case.

Reed successfully argued in the Tribunal that in providing temporary staff to its clients it was supplying introductory services rather than making supplies of staff. This meant that Reed was only liable to account for VAT on the commission element of its charge and not on the overall amount paid by the client (which included the wages paid to the temp and associated National Insurance contributions).

HMRC has said in its outline of its position that, as a judgment of the First-Tier Tribunal, the ruling is only binding on the parties to the appeal. It went on to say that it does "not regard the case as having any wider impact particularly in relation to the VAT treatment that should apply to employment bureaux operating in the current market conditions and regulatory regime".

HMRC said that it will maintain  its policy that an employment bureau acting as an agent only has to account for VAT on its commission whereas a bureau acting as a principal (which it argued Reed was doing) has to account for VAT on the full amount charged to clients including the temps’ wages and employers’ National Insurance contributions.

HMRC confirmed that where a worker enters into a contract with an employment bureau (whether as an employee under a contract of service or a self-employed worker making supplies under a contract for services), the bureau is supplying those staff as principal. In the situation where the bureau is merely acting as an intermediary in finding work for work-seekers or finding workers for its clients (and does not pay or arrange to pay the workers) then the bureau is acting as agent, it said.