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Is VAT Being Overcharged on Supplies of Temporary Workers?


A recent Court decision has cast doubt over HMRC’s interpretation of VAT legislation in respect of the provision of temporary workers. This means that employment agencies may be charging too much VAT on their supplies of staff. For those customers that are unable to recover the VAT charged to them by the agencies, this could be a real opportunity to recover some of this VAT going back to April 2009 and potentially earlier.

HMRC’s view since 1 April 2009 is that VAT must be charged not only on the commission fee for the introduction of the temporary worker, but also on the temporary worker’s remuneration, PAYE, NIC and so on. Following the recent case of Reed Employment Ltd it is arguable that agencies should only charge VAT on their commission fee. The worker’s remuneration and the agencies PAYE/NIC and associated costs should remain VAT free.