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Revenue & Customs Brief 32/11

VAT: HMRC's position following the First-Tier Tribunal decision in the case of Reed Employment Limited

1. Background

This brief explains HM Revenue & Customs' (HMRC's) policy following the First-Tier Tribunal (FTT) decision in the case of Reed Employment Limited (LON/2004/0130).

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.

2. 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.

2.1 Principal

In the context of employment bureaux a principal is the business making the supply of staff. The staff may be employees bound to the bureau by a contract of service or a self-employed worker making supplies to the bureau under a contract for services. In either case, the workers enter into a contract with the bureau making the supply of staff, which then makes an onward supply of those staff as principal to its client. VAT is due on the total consideration received by the bureau.

2.2 Agent

If a bureau is not making a supply of staff as principal, but instead acts as an intermediary in finding work for work-seekers, or workers for its clients and:

  • those two parties enter into a direct contractual relationship with each other
  • the bureau (or any person with which it is connected) does not pay, or arrange to pay, the workers

then the bureau is acting as an agent. The supply is not of staff but, rather, intermediary services of finding work-seekers employment. VAT is only due on the fee the bureau charges.

Issued 24 August 2011