In the case of Reed Employment Ltd v HMRC the Tribunal held that an employment bureau can act as an agent in their supply of temporary workers and should only charge VAT on the commission fee portion of its charge to clients rather than the entirety of its charge as if acting as a principal.
Employment bureaux may therefore have overcharged VAT to their clients where:
VAT has been charged on the entirety of their charge including the salary cost, NIC, holiday pay etc since the withdrawal of the staff hire concession and agency concession from 1 April 2009; or, where
VAT has always been charged on the full amount.
This first tier decision has not been appealed by HMRC, but it is understood that HMRC will refuse any repayment to employment bureaux under the unjust enrichment provisions unless the VAT reclaimed is repaid to the client.
This case will be of significant interest to employment bureaux and businesses that have used temporary workers and have been unable to reclaim all of the VAT charged. Care should be taken where lodging claims particularly where employment bureaux are asked to make claims on behalf of their clients.
Please call Vaughn Chown on 020 7182 4748 or your normal Gabelle contact for further details.