Tax Update (March 2009)

VAT Concession removed

In his 2008 Budget the Chancellor announced the removal of the VAT Staff Hire Concession. This means that from the 1st of April 2009 all businesses making supplies of staff as a principal will have to account for VAT on the full value of their supply.

Any employment bureau that has not utilised the concession and has accounted for VAT on the full value will not be affected by the change. Neither will those seconding staff for no profit or placing disabled workers under the sheltered placement schemes. Those acting as agents for VAT purposes likewise will not be affected.

A business makes a supply of staff for VAT purposes if it provides another person, for a consideration, the use of an individual who is contractually employed by the supplier, or is a director of the supplying company. The key factor is that the staff are not contractually employed by the recipient company, but come under the direction of that company.

The concession has been withdrawn following an extensive review which concluded that the concession is unsupported in the EU and UK law and is therefore illegal.