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Call me thick but if the workers were on the agency payroll I can't see how they had a leg to stand on. If non registered businesses want to avoid the Vat element all they have to do is put them through their payroll.
Call me thick but if the workers were on the agency payroll I can't see how they had a leg to stand on. If non registered businesses want to avoid the Vat element all they have to do is put them through their payroll.
Call me thick but if the workers were on the agency payroll I can't see how they had a leg to stand on. If non registered businesses want to avoid the Vat element all they have to do is put them through their payroll.
Adecco, and many other agencies, will not like this decision and doubtless are at this moment working on new contract structures to get out of the immense output tax liability it will cause as there is no corresponding input tax to offset it.
The first consideration is the cashflow implications to the agencies, then the clients (including government bodies), then the rest of business. The cost will end up with the businesses who use the temporary staff as they will then pay both the output tax to the agencies, together with the margin for the cost of capital which the agencies will introduce (howsoever described) and the VAT thereon, together with their own cost of capital for the additional funds.
Depending on far up or down the food chain the employer is, the final cost will end up with consumers. The consumers are you and I, and this will extend to pensioners and those on benefits - who will need an increase in benefits … and so it goes on.
I am certain the agencies will now adopt contracts which clearly split out the charge for finding the temp staff, and on appointment will transfer the staff to a "client payroll service" which will operate as a payroll agency thus charging no output tax on the staff salaries, although there would be tax to pay on the payroll operation service.
The Reed decision was correct, and HMRC is just trying to increase the VAT take. Adecco just needs to get its contracts in best order.
[quote=dmmarler]
"I am certain the agencies will now adopt contracts which clearly split out the charge for finding the temp staff, and on appointment will transfer the staff to a "client payroll service" which will operate as a payroll agency thus charging no output tax on the staff salaries, although there would be tax to pay on the payroll operation service. "
That seems to me effective for VAT purposes only if the “client payroll service” does *not* do what Adecco does now. To quote the CA judgment on that:
“Nevertheless, Adecco undertakes with these persons to pay them for the work they do for Adecco's clients and is classed as their 'employer' for various regulatory matters, including the working time regulations and payment of PAYE/NIC. Adecco's payment by its clients will be periodic and normally calculated as an amount representing the payment Adecco must make to and on behalf of the temp plus a commission element.”
So it seems to me the only way there’s VAT only on the commission is for the client to assume responsibility for those regulatory matters. Which rather begs the question why they should pay such a hefty commission in the first place.
It makes sense to me a humble lifetime scholar that the vat is due on the full said charged amount. The firm is suppling a worker - a service at £14 per hour. What's the fuss all about?
The Reed judgement is injudicious the learned judges were having a bad day.
The Adeco judgement makes sense - you can't tinker about with the service content provided.
£14 is chargeable not £4
The problem arises in the supply of GP locums by these agencies. GP Surgeries cannot reclaim any VAT as their income is exempt. The VAT element on already expensive locums (already approx £1000 per day!!) will have to come out of the already tight budget, meaning more pressure on the already stretched service. (Locums are having to be used more & more because of the shortage of GP's - and those that are available are becoming locums because it is so lucrative).
The argument was that the supply of medical services via a locum should also be exempt.
Very good point about locums.
We are at a point after 8 years of austerity and still growing debt that everyone is brought into the real world. A hospital porter earns £18000 pa. Polticians need to address the NHS problems where so much money is wasted.
The Adeco judgement makes sense.
It is not just GP locums, it is all hospital staff including consultants and other doctors bought in to fill vacancies through agencies. Only nurses (who are on Whitely rates) are exempt at the moment under the Reed decision. The NHS does not have the output tax to offset against all these inputs, nor the cash. So in the scheme of things we pay the output tax.
Perhaps after Brexit we can have a purchase tax rather that VAT, so something which is more appropriate to our market place.
Good article, well written, I love an example or two. I also like things simple and un-complicated
Extract above
'described as non-employed temps'
Fancy being known as a non employed temps, in the employment world is there any worse term to be known as, I wonder what I am known as.