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Budget VAT rise could reduce demand for temporary workers

Budget VAT rise could reduce demand for temporary workers

VAT rise will further exacerbate cashflow problems in the recruitment sector

The increase in VAT announced at the Budget (23/06/10) could reduce demand for temporary workers, warns the Association of Professional Staffing Companies (APSCo).

VAT will be increased from 17.5% to 20% from 1 January 2011.

APSCo says that the VAT increase could reduce demand for temporary staff in the financial services sector as banks and other financial institutions cannot reclaim VAT.

APSCo explains that since the VAT staff hire concession was withdrawn in April 2009, end users have had to pay VAT on the wages they pay their temporary workers, in addition to the margin they pay recruiters. This has added significantly to the cost of using temporary workers for end users which cannot reclaim VAT (270 million in the first three years).

Ann Swain, Chief Executive of APSCo, comments: The VAT increase will add millions to the cost of using temporary workers in the financial services sector, which is one of the most important markets for APSCo members.

The staff hire concession was only withdrawn last year, so for some end users the cost of temporary workers has risen significantly in a very short period of time. This further increase in VAT could reduce demand for temporary workers in the financial services sector at a time when many banks are still trying to keep a lid on permanent headcounts.

According to APSCo, the VAT increase will also exacerbate cashflow problems in recruitment sector. Staffing companies will have to find extra cash to pay HM Revenue & Customs before they can reclaim the money from their clients.

Ann Swain says: Coming at a time when many recruiters are finding it difficult to obtain finance, any further tightening in cashflow could put the survival of more recruiters in doubt.

APSCo says that the 32 billion of public spending cuts announced at the Budget will have a direct impact on recruiters who transact a lot of business with the public sector.

Ann Swain says: Its logical to assume that temporary workers will be first for the chop, but the leaner public sector will inevitably experience spikes in workload. With permanent hiring freezes in place, we could see greater use of contingent workers to cover lack of capacity when it arises. This could potentially benefit the staffing sector longer term.

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