VAT: Withdrawal of the Staff Hire Concession

With effect from 1 April 2009 the current concessionary arrangements, under which employment businesses are allowed to exclude the wages element from the supplies that they make, are being withdrawn.

The concession was first introduced as a temporary measure in 1997 and has been subject to much debate ever since.

The arrangements were intended to provide employment businesses with a similar VAT treatment to that enjoyed by employment agents.

What will it mean?

All businesses unable to recover VAT on their activities will be affected by the addition of VAT on staff hire costs. This will affect financial institutions, insurance companies, private hospitals, care homes, charities and the education sector.
For example:

Pre-change:
staff costs £1,000 plus fee of £50 plus VAT: £1,058.75
Post-change:
staff costs £1,000 plus VAT £50 plus VAT: £1,233.75

What should you be doing now?

Although the change will not take place for another twelve months businesses should be evaluating the potential additional costs to them and planning to mitigate the effects for the future.