We have outlined in previous newsletters details of the Reed Employment Tribunal case and the potential opportunity to submit claims for VAT incurred on the cost of agency staff that may prove to have been overpaid.
The Tribunal decision back in 2011 suggested that an employment agency should only charge VAT on the commission fee portion of its charge to its clients, i.e. for introductory services only, rather than the entire charge.
Accordingly, employment agencies may have overcharged VAT to their customers where they have accounted for VAT on the entirety of their charges. In most cases, this is VAT charged by agencies since the withdrawal of the Staff Hire Concession and Agency Concession from 1 April 2009.
Any repayment of VAT would be subject to successful future VAT litigation, however we believe it is worth considering making protective claims given that the four-year limit for making claims for overpaid VAT has started to take effect.
Another employment agency, Adecco, has now appealed this issue and has a Tribunal hearing listed for May 2015. If Adecco wins the case, this may lead to HMRC having to pay back VAT collected on the salary/wages element of agency supplies, going back 4 years.
The recipients of the supplies (i.e. the NHS bodies) are not in a position to submit claims directly to HMRC because the Reed decision relates to suppliers potentially overcharging VAT. Any claim for overpaid output tax (protective or otherwise) would need to be made by the employment agency concerned, on the understanding that the refund would be paid back to their customers by way of credit notes. It is however worthwhile quantifying the potential scope of the decision by reviewing all agency supplies over the past four years.
Quantifying any potential refund will depend upon the commission structures the agencies used and also whether the commission has previously been disclosed on the supplier’s invoices.
We would be happy to carry out work in an attempt to protect your VAT position and obtain a potential refund. Please let us know if we can be of assistance.