UK and International Tax news
Court of Appeal Decision In Provision of Temporary Staff Case
Friday 31st August 2018
The Court of Appeal has recently given its decision in a case involving the supply of temporary staff by an employment agency to clients and whether the supply is subject to VAT on the full charge or the commission element.
In Adecco UK Ltd and others v HMRC [ 2018 – EWCA Civ 1794], the appeal from the Upper Tribunal related to the extent to which the fees that Adecco charged in connection with temps who were not its employees were subject to VAT and in particular what was it that Adecco supplied to its clients.
Adecco maintained that it did no more than introduce candidates to clients and provide ancillary (in particular, payment) services. It was the temps themselves, not Adecco, who supplied their services to the clients. Adecco claimed that VAT was not payable on the totality of the sums that it received from clients (which in large part represented payment for the temps’ services), but only on the element attributable to the introduction and ancillary services that it supplied itself.
HMRC denied that any such distinction could be made and that Adecco was obliged to account for VAT on everything that was paid by a client, and that the temps’ services were supplied to clients by Adecco.
The FTT and the UT both agreed with HMRC, albeit for different reasons.
It is noted that the FTT had explained that Adecco had three business models involving employed temps, non-employed temps and contract workers.
Employed temps were assigned to clients on a temporary basis with an employment contract between Adecco and the employee under which the employee agreed to act exclusively for Adecco and Adecco guaranteed to find a minimum number of paid assignments for the employee.
Non-employed temps, being the subject of the appeal, were on the books of Adecco but were not considered to be employed by Adecco. Adecco introduced them to clients looking for temporary workers to undertake assignments. The temps were not obliged to accept any assignment offered and Adecco was not obliged to find them an assignment. However, Adecco undertook to pay them for the work they did for Adecco’s clients and was classed as their ’employer’ for various regulatory matters, including the working time regulations and payment of PAYE/NIC. Adecco’s payment by its clients would be periodic and normally calculated as an amount representing the payment Adecco must make to and on behalf of the temp plus a commission element.
Contract workers were self employed, were introduced by Adecco to a client, and who entered into a separate and direct contract to provide the work required with the client. They were not Adecco’s employees in any sense and Adecco did not undertake to pay them. Adecco’s charge to its clients would typically be a one-off fee, calculated by reference to the contract worker’s rate of pay and the length of the assignment.
There was no dispute as to the correct VAT position with regard to employed temps with VAT chargeable on all charges made by Adecco for the provision of staff, and contract workers in respect of which Adecco supplied just introductory services and was liable only for VAT on the fees for such introductions. The contract workers’ services were supplied directly to clients, not Adecco.
With regard to the VAT treatment of the supply of the non-employed temps, HMRC highlighted and the court agreed that the client would not appreciate any distinction in a contract involving an employed or non-employed temp and that the taxpayer’s argument that Adecco was only providing an introductory service and ancillary (payment) services was flawed. The contract said that the temp was working “through Adecco” and this was the commercial and contractual reality.
The Court of Appeal referred to the 2011 case of Reed Employment [TC01069] where the FTT had agreed that Reed was only providing an introduction service for temp workers, in a situation not dissimilar to that of Adecco, and Reed was able to charge VAT only on its commission, not to the full fee. After Reed was decided, HMRC issued Brief 32/11 in which they commented that they “do not regard Reed as having any wider impact.”
The Court of Appeal also considered that the Reed case was “wrongly decided” and rejected Adecco’s appeal.
If you would like further details on this decision, please contact Keith Rushen on 0207 486 2378.