Staffing companies warned over significant claims from clients over VAT
13 February 2014
Staffing companies could face potentially damaging financial claims from clients if rumours of the outcome of legal test cases following on from the 2011 Reed VAT tribunal prove correct, the Association of Professional Staffing Companies (APSCo) has warned.
Thu, 13 Feb 2014Staffing companies could face potentially damaging financial claims from clients if rumours of the outcome of legal test cases following on from the 2011 Reed VAT tribunal prove correct, the Association of Professional Staffing Companies (APSCo) has warned.
Since 2009, HM Revenue & Customs has required staffing companies to impose VAT on the whole of its charge to clients, rather than just on its margin. However, APSCo says that should rumours prove correct about the outcome of test cases following the 2011 Reed Vat Tribunal, staffing businesses could face substantial claims from VAT exempt clients such as banks and charities.
In the Reed case, the tribunal found that only the firm’s fee element should be liable for VAT. However, should a test case decide that HMRC was incorrect to require staffing companies to impose it on the whole of its charges, APSCo warns that VAT-exempt clients of staffing companies could start reclaiming overpaid VAT since the ending of the Staff Hire Concession in 2009.
This concession had allowed staffing companies to charge VAT on only their commission rather than the full charge that included wages. This particularly benefitted those sectors which are unable to charge VAT to their own customers, such as the voluntary sector, the financial services sector, healthcare providers and some educational establishments.
APSCo warns that while staffing companies can reimburse the overpaid VAT by reclaiming it from HMRC on behalf of their clients, they can only do this going back four years, leaving them open to claims from clients between 2009 and 2010. The potential bill to recruitment companies continues to rise as each VAT quarter passes, says APSCo.
APSCo advises that to protect themselves from claims going back beyond the four-year rule, recruiters should put in a protective claim to protect themselves from clients’ claims.
In an Expert Advice piece for recruiter.co.uk, Debra Dougal, a director at Haslers accountants, explains: “Protective claims do just what they say on the tin: they protect potentially overpaid or under-claimed VAT from going out of time under the four-year capping rules. So, with the staff hire concession having been withdrawn in April 2009, protective claims are a current issue as, with every VAT quarter that passes, the ‘lost’ VAT increases.
“Putting together a protective claim takes time and inevitably results in an exchange of correspondence with HMRC before they finally decide to refuse the claim and allow the business to Tribunal, either as a standalone case, behind another lead case, or as part of a group litigation. Employers need to understand that, whilst the employment agency is the claimant, they do so on behalf of the employer as, in most cases, any VAT recovered must be passed back to the employer. Co-operation and fairness between employment agency and client is therefore key.”
Samantha Hurley, APSCo’s head of external affairs, says: “While 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.”
Since 2009, HM Revenue & Customs has required staffing companies to impose VAT on the whole of its charge to clients, rather than just on its margin. However, APSCo says that should rumours prove correct about the outcome of test cases following the 2011 Reed Vat Tribunal, staffing businesses could face substantial claims from VAT exempt clients such as banks and charities.
In the Reed case, the tribunal found that only the firm’s fee element should be liable for VAT. However, should a test case decide that HMRC was incorrect to require staffing companies to impose it on the whole of its charges, APSCo warns that VAT-exempt clients of staffing companies could start reclaiming overpaid VAT since the ending of the Staff Hire Concession in 2009.
This concession had allowed staffing companies to charge VAT on only their commission rather than the full charge that included wages. This particularly benefitted those sectors which are unable to charge VAT to their own customers, such as the voluntary sector, the financial services sector, healthcare providers and some educational establishments.
APSCo warns that while staffing companies can reimburse the overpaid VAT by reclaiming it from HMRC on behalf of their clients, they can only do this going back four years, leaving them open to claims from clients between 2009 and 2010. The potential bill to recruitment companies continues to rise as each VAT quarter passes, says APSCo.
APSCo advises that to protect themselves from claims going back beyond the four-year rule, recruiters should put in a protective claim to protect themselves from clients’ claims.
In an Expert Advice piece for recruiter.co.uk, Debra Dougal, a director at Haslers accountants, explains: “Protective claims do just what they say on the tin: they protect potentially overpaid or under-claimed VAT from going out of time under the four-year capping rules. So, with the staff hire concession having been withdrawn in April 2009, protective claims are a current issue as, with every VAT quarter that passes, the ‘lost’ VAT increases.
“Putting together a protective claim takes time and inevitably results in an exchange of correspondence with HMRC before they finally decide to refuse the claim and allow the business to Tribunal, either as a standalone case, behind another lead case, or as part of a group litigation. Employers need to understand that, whilst the employment agency is the claimant, they do so on behalf of the employer as, in most cases, any VAT recovered must be passed back to the employer. Co-operation and fairness between employment agency and client is therefore key.”
Samantha Hurley, APSCo’s head of external affairs, says: “While 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.”
