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STAFF HIRE CONCESSION REMOVAL WILL LEAVE SOUTH WEST BUSINESSES SHORT, WARNS DELOITTE

Hundreds of companies across the South West, including banks, insurance firms, healthcare institutions and charities, could be hit by an increased VAT bill if they use temporary staff.

 Leading business advisory firm Deloitte has warned that HM Revenue & Customs‘ (HMRC) decision to remove the Staff Hire Concession (SHC) from 1 April next year, will cost businesses in the region millions of pounds in additional VAT.

The SHC currently allows employment businesses, specialising in temporary staffing, to supply their employees as temporary workers to clients and only charge VAT on their commission or agency fees. This means that businesses classified as exempt, or non-business clients such as charities, do not suffer a VAT charge on wage payments. 

But Daniel Lyons, partner in the indirect tax team at Deloitte in Bristol, says: “This latest change will result in a wide range of businesses in our region facing significantly increased costs when using temporary workers. 

“It will also have a considerable impact on the flexibility of the labour market as temporary workers will become much more costly than permanent employees.” 

The SHC was introduced in attempt to achieve a level playing field in the temporary worker‘s market. The Reed case in 1995 established that employment agencies, ie who had no contractual relationship with workers, only needed to account for VAT on their commission. It was argued that without the SHC, there was a risk that employment businesses employing their workers would need to account for VAT in full, thereby distorting the market.

HMRC‘s view is that the Conduct Regulations introduced in 2003 required most providers of temporary workers to operate the same business model for the first time, ie contract with workers.  

It therefore argues that VAT is legally due on all payments collected by these businesses and that there is no distortion in the market.  For this reason, it believes the SHC has become redundant. 

ENDS             18th March 2008

For further information please contact Neil Fraser, Sturgess Van Damme, on 01275 349011 or email david@sturgessvandamme.co.uk