APSCo recommends protective VAT claims in light of rumoured HMRC test cases
Since 2009 HMRC has required staffing companies to impose VAT on the whole charge to clients, opposed to just the margin element. However rumours of test cases following on from the 2011 Reed VAT tribunal have led to fears that this treatment may be found to be incorrect. If this is so, then recruitment businesses may find themselves faced with substantial reclaim bills from clients, such as banks and charities, which are unable to reclaim VAT from HMRC.
Prompted by members’ concerns, APSCo has consulted with its affiliate tax and legal specialists and is advising that if any future test cases brought against HMRC are successful, VAT exempt clients could start reclaiming over paid VAT since the demise of the Staff Hire Concession in 2009. However as businesses can only reclaim VAT from HMRC for the past four years (2010), they are potentially already & lsquo;out of pocket’ in relation to the VAT they may have to pay back to their clients.
APSCo’s head of external affairs, Samantha Hurley, commented, “APSCo appreciates that this is potentially a very serious issue which is why we are passing on this advice to our members that it would be prudent to make protective claims against HMRC at the earliest opportunity. Whilst APSCo acknowledges that protective claims will require a level of resource to collate the information and can be costly dependent upon the level of exposure, the consequences of not doing so could be far more detrimental.
"We feel that it is wholly unfair that recruitment firms that have been following the law and the advice of HMRC are now in this position of having a potential liability that they will be unable to reclaim. This is why APSCo’s March members meeting will focus on this subject, including the background to this issue, as well as a panel of legal and tax experts to answer members’ questions”.