Temporary workers to become more expensive
Organisations who engage temporary staff through agencies may find the VAT costs climbing steeply next year, as a result of a measure in the 2008 budget.
Under the current system recruitment agencies can use the “staff hire concession” to only charging VAT on their commission for placing the worker – provided the organisation taking on the worker pays them directly and also passes their tax and NI straight to HMRC without involving the recruitment agency. This is an especially useful concession to VAT-exempt entities with a social welfare basis, such as charities, care homes and nurseries, who cannot reclaim all the VAT costs they incur (although they do have to take on the extra administrative work). The NHS is also able to take advantage of the concession when hiring locum doctors.
This concession is now to be withdrawn from “employment business” – i.e. largely recruitment agencies only – with effect from 1 April 2009. The Recruitment and Employment Confederation estimates the cost of the measure to client companies at £125m per year.