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VAT Tribunal Ruling - Time to end stalemate, says REC

VAT Tribunal Ruling - Time to end stalemate, says REC

The First Tier Tribunal ruling in the case between Reed Employment and HMRC re-ignited the debate on the way that VAT is charged on the provision of temporary staff in a number of specific sectors. Following the ruling, the REC has underlined the need to build consensus and to avoid agencies being caught between HMRC's line and requests from some clients for immediate changes to be made.

The clear steer from HMRC and tax experts is that -  as this was only a First Tier Tribunal - the ruling in itself should not result in any changes being made. The REC's most recent discussions with HMRC confirmed the Government's view that the ruling has a limited application and certainly does not set any sort of precedent. 

The immediate priority is to ensure that this message is communicated to agencies and to employers which is why the REC has called for HMRC to publish an official Briefing Note on this issue. 

Commenting on the latest developments, Tom Hadley, The REC's Director of Policy and Professional Services says:

"It is crucial to ensure that agencies are not caught in a 'Mexican stand-off' with HMRC and client organisations. Following the tribunal ruling, employers initially approached agencies with urgent requests for payment models to be amended.  Although this trend seems to have subsided somewhat  - perhaps due to increased awareness that this was only a First Tier Tribunal - the need for a clear and consistent messages to be sent to both providers and users of temporary staff is of paramount importance.

"A formal HMRC Briefing Note would be an important step forward. The other priority is to continue engaging with business organisations to monitor and influence to messages being disseminated to employers.” 

Looking at immediate and longer term priorities, Hadley concludes:

"In the short-term, the REC will continue to play an intermediary role between agencies and Government in order to co-ordinate queries and build consensus on the practical implications of the ruling.

"In the longer term, recruiters and their clients may want to look further into the substance of the case and challenge HMRC's argument that the recent Tribunal decision was based on a unique model and set of circumstances. This would be a potentially lengthy and costly process but would have the benefit of decreasing the overall cost of temporary staffing in some sectors.

"The REC will continue to engage with client organisations to look at the longer terms options. In the meantime, agencies and employers going against the HMRC steer would be taking a substantial risk which is why the REC's advice to members is to avoid making any changes to current charging models simply on the basis of the First Tier Tribunal ruling.”

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