The Treasury has been attacked over plans to remove a concession for temporary staff that will add to the costs of hiring them for firms already feeling the pinch.
From April, clients of temps, including financers and charities, which cannot fully recover VAT will pay VAT on temps’ salaries, on top of the agents’ commission.
In other words, agencies who place temps to zero-rated VAT clients will charge VAT on the margin of the placement, and on the total wages of that worker’s placement.
In the financial services sector alone, the bill for investment banks is estimated to be £50milllion, according to estimates by the REC, which has condemned the removal.
The Association of British Insurers said officials should rethink the policy, as it would adversely impact firms already “exposed to severe economic difficulties.”
Taxation director Peter Vipond told the Financial Times the “current strains” in the jobs market should be recognised and as a result the policy should be dropped.
“This is a crucial issue,” he told the paper, “as financial firms are wholly or partly unable to recover VAT, and now is not the time to increase the cost of employment.”
However, Revenue and Customs have insisted the concession for temporary staff hires is contrary to EU law and its removal will affect only 5% of agency work.
“[We are] not convinced that HMRC has correctly estimated the cost of the removal of this concession to these sectors,” said Anne Fairweather, the REC’s head of public policy.
“Evidence from the affected sectors suggests that the cost could be to the tune of £400 million. The removal of the concession will reduce flexible working opportunities in the financial services sector at a time when it is under great strain.”
Oct 1, 2008
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