VAT ruling 'will affect farm businesses', say Saffery Champness

Farms and rural businesses that hire temporary staff through an agency have had the status of VAT charged on that supply confirmed in a recent ruling.

In the case of HM Revenue & Customs (HMRC) v Adecco, the First Tier Tribunal has ruled against Adecco and found that the element of its charges to clients relating to the wages of temporary workers are subject to VAT.

Thus, the HMRC position remains unchanged; that VAT is due on all amounts charged to clients for the supply of temporary workers’ services, irrespective of whether they are employed or non-employed temps. This latest case was concerned with non-employed temps only.

David McGeachy, Partner and VAT specialist with the Landed Estates and Rural Business Group of UK top 20 Chartered Accountants Saffery Champness says:

Essentially, the Tribunal has found that the client received the services direct from the temporary worker, but the obligation to pay arose from its contract with Adecco (there was no contract between the client and the temporary worker) meaning that it was correct that they were taxed on the full value of the supply received, in accordance with EU VAT principles.

The decision clearly conflicts with a previous case (Reed) and the judge accepts that it is likely to be appealed by Adecco. The Reed case concerned employment contracts prior to the Conduct of Employment Agencies & Employment Business Regulations 2003, whereas the Adecco employment contracts were post the introduction of these regulations.

In the interim, the HMRC position will remain unchanged and any agencies that have filed claims with HMRC will have to wait to see if Adecco does appeal.