Weekly VAT Update – 21 March 2017
Adecco – Supplies of temporary workers
The Upper Tribunal has released its decision in a case that will have significant implications for employment agencies throughout the UK. Being an Upper Tier case it is binding unlike the First Tier which just provides guidance.
Various employment agencies – collectively referred to as “Adecco” – appealed against a 2015 decision made by the First-Tier Tribunal that the provision of temporary workers, who were not considered to be employees of Adecco, was subject to VAT at the standard-rate. Adecco’s clients paid a commission for what were effectively introductory services, together with an amount equivalent to the sum Adecco was contractually obliged to pay the workers. Historically, Adecco had accounted for VAT on the full amount received from their clients. However, as a result of another ruling in the First-Tier Tribunal (Reed Employment), Adecco submitted various claims for refunds of overcharged VAT on the amounts paid to the temporary workers. The Tribunal in the Reed case decided that Reed was making supplies of introductory services and, therefore, VAT was only due on the commission received by Reed.
Despite the Reed ruling, HMRC rejected Adecco’s claims for overpaid VAT for various reasons, one of which was that HMRC considered the supplies of Adecco to be more than just introductory services, and that they were actually supplying the temporary worker’s services as well. Adecco appealed this decision to the First-Tier Tribunal, which found that Adecco was liable to account for VAT on the full amount received from their clients. The Tribunal looked at the contractual arrangement between the parties and found that:
- The clients were obliged to pay Adecco for the work done by the temporary employees, as well as Adecco’s “introductory services”;
- Adecco was obliged to pay the temporary workers for the temp work; and
- There was no contract between the temporary workers and the clients.
The First-Tier Tribunal considered that the contractual position is the start point from which it was clear that the Adecco was acting as principal in both supplies and, therefore, both supplies were subject to VAT.
The Upper Tribunal agreed with the First-Tier Tribunal’s analysis and upheld the decision.
As this decision has only just been released, it is not known whether Adecco will try and appeal to the Court of Appeal. However, due to the amount of tax at stake for the various appellants in this matter, and for those businesses that have repayment claims standing behind this decision, it may not be the end of the matter.