Note 25th June 2010 – As can be seen from the article below HMRC
started a review of the concession in July 2006. In April 2008 it was
announced that the concession would be withdrawn after 1 year, and on
1st April 2009 the concession ended.
The concession was particularly useful for public sector
organisations, banks and charities, none of which could set their VAT
payments against VAT charges as they are VAT exempt. Small businesses
with low turnover, and start up businesses also may not register for VAT
if their turnover is below the registrable limit, and thus coud take
advantage, but even businesses that can charge VAT benefitted from the
cash flow advantage of hiring agency workers without payment of VAT on
the workers charge element.
The article below contans a brief explanation of the position in 2006.
HMRC announces start of a review of the concessions that allow agencies to charge vat only on their margin charge.
HMRC has announced in its business brief 06/06 the start of a
review of the staff hire concession and the employment business
concession, set out in business briefs 02/04 and 10/04. The purpose of
the review is to take into account the Conduct of Employment Agencies
and Employment Businesses Regulations 2003.
So what is this all about?
The concessions affect organisations that use employment
businesses, where the organisation, for example, is a charity or
financial institution. The concessions allow for the employment business
to charge vat only on the margin or gross profit element of its overall
charge to the client. This business is commonly known as vat margin
The review now is presumably to consider whether
- to continue to allow the concessions as they currently stand or
- whether any adjustments need be made to them, or
- whether they should be ended altogether.
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