The Adecco tax case has been listed for hearing between 11 and 15 May 2015 at the first tier Tax Tribunal. This case takes forward similar arguments to those raised in the Reed case which challenged HMRC’s position that VAT was due on all payments received by an employment business from its clients/hirers.
Following the withdrawal of HMRC’s staff hire concession from 1 April 2009, VAT became chargeable on the supply of temporary staff. Under the concession, workers could be provided through an employment business and VAT would not have to be charged on the workers’ wages and national insurance contributions. From April 2009, unless the provider is an employment agency (i.e. providing introduction services only), VAT must be charged on the full price payable by the hirer, inclusive of the worker’s pay & taxes. Where the hirer is unable to recover the VAT charged, as is the case with banks and other financial institutions which make exempt supplies (such as finance & insurance) and charities, the hirer will have suffered a substantial increase in costs.
The first tier Tax Tribunal in the Reed case of 2011 held that the VAT position of an arrangement was not determined solely by the regulatory position and a principal/agent analysis. The economic reality of what was being supplied also had to be considered. The Tribunal held that because Reed did not exercise control over its temporary workers there could be no passing of control to the client. Instead, the client was responsible for the supervision and control of the temporary worker throughout the assignment. Accordingly, the Tribunal held that Reed, the taxpayer, supplied introductory services to the client rather than making a supply of staff as principal, such that VAT was only due on the commission element of its charge.
It should be noted that following this ruling HMRC issued a briefing (Revenue & Customs Brief 32/11), which confirmed that it considered that the Reed case was decided on its specific facts and did not have any wider impact. Whether this is also the case with the facts in Adecco remains to be seen.