Revenue & Customs Brief

HMRC has issued Revenue & Customs Brief 32/11 to explain its policy following the First-tier Tribunal (FTT) decision in the case of Reed Employment Limited TC01069. The Tribunal held that in providing temporary staff to its clients Reed was supplying introductory services rather than making supplies of staff. Accordingly the company was only liable to account for VAT on the commission element of its charge and not on the overall amount paid by the client, which included the wages paid to the temp and associated National Insurance contributions.

HMRC's position

As a judgment of the FTT Reed is only binding on the parties to the appeal. It was decided on its specific facts which involved an historic claim and concerned tax periods up to 1996. The Reed decision differs from the earlier judgment of the tribunal in Hays Personnel Services Ltd (LON/95/2610) in which the Tribunal determined that Hays was a principal and VAT was due on the whole consideration received. HMRC therefore do not regard Reed as having any wider impact, particularly in relation to the VAT treatment that should apply to employment bureaux operating in the current market conditions and regulatory regime. HMRC's view of the correct VAT treatment for employment bureaux remains that set out in VAT Information Note 03/09. In essence a bureau acting as an agent only has to account for VAT on its commission whereas a bureau acting as a principal has to account for VAT on the full amount charged to clients including the temps’ wages and employers’ National Insurance contributions. For more information visit http://www.hmrc.gov.uk/briefs/vat/brief3211.htm