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The withdrawal of HMRC's staff hire concession was today criticised by the Recruitment and Employment Confederation (REC).
The trade body claims the change — to take effect from 1 April 2009 — will lead to a 'massive increase in the cost of supplying temporary workers to certain sectors': a cost that be as high as £400 million.
According to the REC, the new VAT arrangements, which will result in employment agencies charging 17.5% on the wages of the temporary workers the supply, will most adversely affect the charity, healthcare, education, social housing and financial services sectors.
In financial services, for instance, the cost to investment banks is estimated at £50 million, said the confederation, which added that English colleges could be faced with paying an extra £20 million a year.
REC head of public policy Anne Fairweather said her organisation was 'not convinced that HMRC have correctly estimated the cost of the removal of this concession to these sectors.
'Evidence… 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.'
REC director of professional services Fiona Coombe added: 'We are keen to work with HMRC to find viable solutions that are in line with VAT law but also result in the affordable supply of vital flexible staffing'.
The staff hire concession was introduced in 1997 as a temporary measure intended to provide employment businesses with a similar VAT treatment to that enjoyed by employment agents who pay workers directly.
The Department of Trade & Industry then introduced the Conduct of Employment Agencies and Employment Businesses Regulations 2003 (Conduct Regulations) to take effect from 2004.
Customs & Excise, as was, consequently introduced a further related concession to maintain an equitable VAT treatment.
The department also confirmed that the concessionary arrangements would continue to allow sufficient time to fully assess the impact of the conduct regulations on the VAT treatment and the effect of withdrawing the concession.
HMRC launched its review of the concession in 2006.
