UK: Reed Employment Limited v Revenue & Customs (2011)

FIRST TIER TRIBUNAL DECISION – VAT CONSIDERATION

The First-Tier Tribunal has recently ruled in favour of Reed Employment Ltd (Reed) in an appeal regarding the VAT treatment of the supply of temporary staff. It was held that VAT should only be charged on the commission fee portion of the charge to its clients, rather than the entirety of the charge.

Reed, a recruitment business, introduced temporary workers to clients who were looking to fill temporary job vacancies. Reed would issue a weekly invoice to the client. The amount invoiced was based on an hourly charge rate (agreed between the Reed and the client) which included a wages and associated NIC element and their commission. Reed argued that they were supplying an introductory service to its clients in return for a commission. However, HMRC sought to argue that Reed was making a supply of staff as its principal operation, the consideration for which was the whole amount charged to the client.

In this case, Reed had paid output VAT on the wages and National Insurance Contributions (NIC) of the temporary workers and therefore argued that VAT had been overdeclared.

The First-Tier Tribunal held, after reviewing the contracts and advertising literature of Reed, that VAT was only due on the commission element of the charge to its clients. Therefore, Reed had overdeclared output VAT.

It has been HMRC's policy since 1 April 2009 that both the commission element and the wages and NIC elements should be treated as consideration for the supply of temporary staff. However, doubts have now been cast over that policy. This judgment could have a significant effect on the current VAT treatment of supplies made by various employment agencies.

It is important to note that this is still only a First-Tier Tribunal decision and therefore, it is widely anticipated that HMRC will appeal. While this may not be the final decision in the case, it will still be of great interest to many businesses and organisations that supply and also use temporary staff. It seems very unlikely that this will be the last we hear of this ongoing dispute.

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