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Case Alert Adecco UK Ltd
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© 2015 Grant
Thornton UK LLP. All rights reserved. âGrant Thorntonâ refers to the brand under which the Grant Thornton member firms provide assurance, tax and advisory services to their clients and/or refers to one or more member firms, as the context requires. Grant Thornton UK LLP is a member firm of Grant Thornton International Ltd (GTIL). GTIL and the member firms are not a worldwide partnership. GTIL and each member firm is a separate legal entity. Services are delivered by the member firms. GTIL does not provide services to clients. GTIL and its member firms are not agents of, and do not obligate, one another and are not liable for one anotherâs acts or omissions. This publication has been prepared only as a guide. No responsibility can be accepted by us for loss occasioned to any person acting or refraining from acting as a result of any material in this publication. grant-thornton.co.uk GRT100456 Summary The supply of staff between one legal entity and another is a taxable supply of services upon which VAT is due in the UK at the rate of 20%. The question of what constitutes a supply of staff is a complex one to resolve. However, the FTT ruled in Reed Employment that the first employer had to 'control' the employee and that such control had to be ceded to the second employer for there to be such a supply. In this decision, the FTT has declined to follow that reasoning. The contractual obligations are such that the worker supplies his services to Adecco, which in turn supplies the worker to his customer. This constitutes a supply of staff and VAT is due on the full consideration received. 4 December 2015 First-tier Tax Tribunal (FTT) The FTT (Judge Barbara Mosedale), has issued its eagerly awaited decision in the litigation between Adecco UK Ltd (and other group members) and HMRC. The issue in dispute is whether Adecco's supply to its customers, of temporary workers, should be regarded for VAT purposes as a supply of staff or, merely, as a supply of introductory services. HMRC contends in this litigation that there is a supply of staff and that, as a result, VAT is due on the full consideration received by Adecco, which includes the temporary worker's wages, PAYE and NI costs along with Adecco's commission. Adecco, on the other hand, argues that, in reality, all it does is simply introduce the temporary worker to the customer and that, as a result, only its commission should be subject to VAT. Adecco considers that it simply collects the wages element as a disbursement and that VAT is not due on these payments. Adecco relied heavily on the FTT's previous decision in the case of Reed Employment Ltd (a case based on similar issues and arguments) where the Tribunal found that for there to be a supply of staff, the agency had to have control of the worker and cede that control to the customer. In the absence of such control, the FTT (Judge Roger Berner) allowed Reed's appeal and ruled that there was only a supply of introductory services and, consequently, VAT was only due on the commission element of the payments received. In the Adecco case, Judge Mosedale considers that Reed Employment was decided incorrectly and has refused to follow it. The contractual obligations between Adecco and the worker and the economic reality of the supply was that the worker was obliged to work for the customer. However, that obligation was owed to Adecco under the terms of the agreement between the worker and Adecco. Similarly, the customer was obliged under contract with Adecco to pay Adecco for the worker's services. In consequence, even though the customer controlled the worker during the term of the assignment, the FTT considers that the arrangements amounted to a supply of staff and VAT was due on the full payment. Comment â Judge Mosedale's refusal to follow Reed employment is a surprise. We are now left with two diametrically opposed decisions from the same Tribunal. In the circumstances, given the tax at stake in this case, it is highly likely that an appeal to the Upper Tribunal will follow in due course. Adecco UK Ltd (& others) v HMRC Case Alert Contact Stuart Brodie Scotland stuart.brodie@uk.gt.com (0)14 1223 0683 Karen Robb London & South East karen.robb@uk.gt.com (0)20 772 82556
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