HM Revenue and Customs Brief 32/11
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Issued 24 August 2011 - HMRC
VAT: HMRC's position following the First-Tier Tribunal
decision in the case of Reed Employment Limited
This brief explains HM Revenue & Customs' (HMRC's)
policy following the First-Tier Tribunal (FTT) decision in the case of
Reed Employment Limited (LON/2004/0130).
The Tribunal held that in providing temporary staff to its
clients Reed was supplying introductory services rather than making
supplies of staff. Accordingly the company was only liable to account
for VAT on the commission element of its charge and not on the overall
amount paid by the client which included the wages paid to the temp and
associated National Insurance contributions.
2. HMRC's position
As a judgment of the FTT Reed is only binding on the parties
to the appeal. It was decided on its specific facts which involved an
historic claim and concerned tax periods up to 1996. The Reed decision
differs from the earlier judgment of the tribunal in Hays Personnel
Services Ltd (LON/95/2610) in which the Tribunal determined that Hays
was a principal and VAT was due on the whole consideration received.
HMRC therefore do not regard Reed as having any wider impact,
particularly in relation to the VAT treatment that should apply to
employment bureaux operating in the current market conditions and
HMRC's view of the correct VAT treatment for employment
bureaux remains that set out in VAT Information Note 03/09. In essence
a bureau acting as an agent only has to account for VAT on its
commission whereas a bureau acting as a principal has to account for
VAT on the full amount charged to clients including the temps’ wages
and employers’ National Insurance contributions.
In the context of employment bureaux a principal is the
business making the supply of staff. The staff may be employees bound
to the bureau by a contract of service or a self-employed worker making
supplies to the bureau under a contract for services. In either case,
the workers enter into a contract with the bureau making the supply of
staff, which then makes an onward supply of those staff as principal to
its client. VAT is due on the total consideration received by the
If a bureau is not making a supply of staff as principal, but
instead acts as an intermediary in finding work for work-seekers, or
workers for its clients and:
- those two parties enter into a direct contractual
relationship with each other
- the bureau (or any person with which it is connected) does
not pay, or arrange to pay, the workers
then the bureau is acting as an agent. The supply is not of
staff but, rather, intermediary services of finding work-seekers
employment. VAT is only due on the fee the bureau charges.
About the Author
© Crown Copyright 2011.
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for educational / informational purposes only. Article reproduced by
permission of HM Revenue & Customs.
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Article Published/Sorted/Amended on Scopulus 2011-08-25 22:39:30 in Tax Articles