The Recruitment and Employment Confederation (REC) has expressed its dismay at learning that the government intends to go ahead with plans to drop the VAT staff hire concession as from 1 April.
The REC has been running a long campaign to get the Treasury to delay the move, announced in the last Budget, until after the recession.
As a result, employment businesses will have to charge VAT on all supplies of temporary staff, except where there are specific exemptions (such as those providing care to patients in their own homes).
The REC has argued that this will adversely affect employers who cannot reclaim VAT but who rely on temporary staff to keep their businesses flexible.
Sectors that will be hit include finance, health and care, education and charities.
The VAT staff hire concession had meant that agencies, supplying staff to employers who are unable to recover VAT, could exclude VAT from the wages element of their costs.
Originally introduced as a temporary measure in 1998, the concessions are being dropped partly because of changes to the legislation affecting employment businesses and partly because it is the view of HMRC that they are unjustifiable in terms of UK and EU VAT law.
It has been estimated by the REC that the concessions save employers something in the region of £400 million a year.
The REC has argued that, regardless of the validity of the concessions, there has been insufficient consideration of the impact on businesses.
Kevin Green, the REC’s chief executive, said: “We are dismayed that even after producing evidence that up to 150,000 temporary jobs are at risk, the government –after many meetings – decided not to heed our advice to defer this tax on jobs.
“We have consistently drawn to the government’s attention the implications the concession’s withdrawal will have on the supply of temporary staff to key sectors such as financial services, healthcare, education and charities.”
Other business groups also voiced their worries over the decision.
The CBI’s director of HR policy, Katja Hall, said: “This is a very disappointing, retrograde step at a time when businesses need help to survive the recession and keep people in work.
“Adding to the cost of hiring temporary workers can only add to the growing unemployment figures. Temporary work gets people into jobs, and will be vital in cutting unemployment when confidence returns. The concession was designed to be temporary, but we believe the government should wait until the recession is over.”
