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Reed vs HMRC: Agencies may face demands for VAT repayments

Reed vs HMRC: Agencies may face demands for VAT repayments

VAT specialists at accountants Smith & Williamson warn that agencies supplying self-employed temporary staff could face demands from clients for VAT refunds running to thousands of pounds and going back several years.

In the case of Reed vs HMRC, the first tier tax tribunal held that an employment bureau should only charge VAT on the commission fee portion of its charge to clients, rather than on the entirety of its charge including salary, NIC, holiday pay etc. HMRC has now confirmed that it has decided not to appeal this decision.

"This latest decision could overturn the invoicing habits of many employment agencies and so potentially leaves them open to demands from clients," explained Hannah Dobson.

"I am therefore urging any agency which supplies temporary self employed staff to review how it applies VAT on its invoices and to get advice on the best approach going forward. Regrettably the VAT position is not cut and dry but the latest decision obviously has implications across the employment agency sector. Businesses which make mistakes could face fines and formal enquiries from the tax authorities - not to mention demands for repayments from clients," she warned.

Hannah continued: "Agencies who provide self employed temps to the financial services, housing, charity and health sectors should take particular note of this decision. Clients operating in these sectors may be most likely to lodge a claim against their agency for repayment of overcharged VAT as they are unable to reclaim VAT in full on their business costs. In consequence, this Tribunal decision may give them an opportunity to recoup previously lost VAT ."

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