New rule to raise cost of hiring temps

Mar 28 2008 By Greig Cameron

Legislation will lead to increase in VAT bills

Businesses will be hit with massive rises in the cost of hiring temporary staff when new legislation kicks in.

Removal of the staff hire concession will take place in April next year.

The ruling, which has been in place since 1997, allows employment agencies to charge VAT solely on the commission element of their supplies rather than the total cost of placing a temporary worker.

Trade body, the Recruitment and Employment Confederation (REC), says this is vital for agencies supplying to organisations which cannot reclaim VAT charged to them such as banks, financial institutions, charities, private hospitals and care homes.

Fiona Coombe, director of professional services at the REC, said: "The REC has presented a great deal of evidence to HMRC on the impact of the withdrawal of this concession. The regulatory impact assessment conducted by HMRC on this issue fails to assess the financial impact for the client organisations which will now have to find an extra £125million a year to pay the VAT.

"The cost of taking on vital temporary staff will rocket in sectors where they cannot reclaim the VAT charged to them. This includes vulnerable sectors such as charities providing healthcare and social housing.

"Within the NHS, it is also likely to cause a cash flow problem as charges will increase on placing locum doctors. The cost of agencies to change their invoicing systems has also been woefully miscalculated. This massive change will need to be explained to clients, an additional cost to the recruitment sector."

Allan Cuthbert, VAT manager at PKF accountants, believes the decision to withdraw staff hire concession will lead to a 500 per cent increase in VAT costs.

He said: "This is very bad news for a large number of businesses which are unable to reclaim all their VAT, for example banks, insurers, private hospitals, private schools and colleges, universities and charities."