VAT change 'will hit temporary workers'

Date: 6th August 2008

A new report has warned that government plans to alter the VAT rules for temporary workers could have massive consequences for businesses operating in certain sectors.

The government announced plans to charge VAT at 17.5 per cent on the wages of temporary staff earlier this year.

Now, the Recruitment and Employment Confederation (Rec) has said that the move - which is set to come into force in April 2009 - will affect businesses working in the social care, education, social housing and financial services sectors.

Worryingly, the report suggested that the VAT change could end up costing businesses operating in the social housing sector £135 million alone.

"The Rec is not convinced that HMRC has correctly estimated the cost of the removal of this concession to these sectors," Anne Fairweather, head of public policy at the organisation, explained.

"Evidence from the affected sectors suggests that the cost could be to the tune of £400 million. This will have a dramatic impact on the supply of staff to work with some of the most vulnerable in society."

Fiona Coombe, the director of professional services at the Rec, continued: "We are keen to work with HMRC to find viable solutions which are in line with VAT law but also result in the affordable supply of vital flexible staffing."