Recruitment agency clients are “highly likely” to contribute to meeting the costs of litigation to resolve the current impasse surrounding the charging of VAT, according to a VAT partner at Deloitte.

Helen Devenney told Recruiter that, since HMRC issued a briefing at the end of August, which failed to resolve the issue of whether agencies are entitled to charge VAT to their clients on a margin-only basis when supplying temporary staff, clients of agencies had been discussing this option with their suppliers.

“Some clients are quite keen because the amounts of money are quite large. They want to get it resolved, and wouldn’t be averse to picking up a proportion of the costs,” said Devenney.

Some clients could benefit by tens of millions of pounds if their agencies were able to charge on the margin rather than on the full value of the invoice, said Devenney. She explained that they would benefit both from the reduced costs of using agencies, and from successful claims for overpaid VAT going back up to four years.

However, Devenney said that, following HMRC’s restatement of its position that only staffing businesses that are acting as an agent are allowed to charge clients VAT on a commissiononly basis, litigation was the only effective way to resolve the issue.

Devenney added the cost of a tier-one tax tribunal was around £350k, mainly in legal fees.

She said that, since the HMRC briefing, between five and 10 of her agency clients had told her of conversations they had had with their own clients. These were agencies supplying into finance, and insurance, health, education and charity sectors, where since April 2009, clients have been unable to reclaim VAT on temporary staff.

HMRC told Recruiter that any claims for a refund of overpaid VAT would be considered on a case by case basis.