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VAT Update - Withdrawal of Staff Hire Concession

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Under current VAT rules, employment agencies (and other firms) charge Value Added Tax on their 'profit margin', not on the total amount received. This concession is to be withdrawn from 1st April 2009.

This long expected measure, announced earlier this year, will also affect other businesses which cannot recover VAT in full - such as companies in the health, education, financial and charitable sectors.

On 27th March 2008, HMRC put out a document reviewing the responses received to their consultation on the changes. It was hardly a consultation, given that the decision had already been taken to withdraw the concession!

HMRC do accept that those sectors indicated above will be affected. They estimate that the ‘revenue yield’ in the first year will be £125million. This is money which will be charged as VAT, but will not be recoverable. That is a substantial additional cost to those sectors affected.

Affected businesses have a year to consider their position. In some sectors, particularly health, there will be an opportunity to consider whether the supply of staff should be treated as VAT-exempt in any case. In this case, the contractual position could be changed to benefit from the exemption under Sch 9, Group 7.

Article written for Bytestart by Les Howard (VAT Consultant) - http://www.vatproblem.com/

Posted April 9, 2008

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