A recent Court of Appeal ruling in the case of ‘Adecco & others vs HMRC’ that employers are required to pay VAT on the wages of temporary staff could cost the charity sector in the region of £20 million per year.
The ruling that VAT is due on the total amount employment agencies charge for temporary staff, rather than just their agency fees alone, prompts uncertainty around future costs. The rationale behind this specific ruling was that the temporary staff were provided by Adecco as principal, not as agent.
This has now resulted in an ambiguous state of affairs, and potentially a large VAT drawback when it comes to flexible employment for charities.
The Court’s decision could negatively impact charities, particularly those that use temporary staff for non-business or exempt purposes, as the additional VAT would be irrecoverable and result in an absolute cost. The repercussions have the potential to infiltrate even further, altering comparable agency arrangements for transport, training, online services other provisions based on the agent / principal model.
It may be beneficial to review existing contracts of this nature, with a view to restructuring to mitigate additional VAT costs.
In the Court ruling of ‘Adecco & others vs HMRC’, the following facts were taken into account:
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