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Adecco UK and others v HMRC

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In Adecco UK and others v HMRC [2017] UKUT 113 (17 March 2017), the UT found that employment bureaux were supplying work by temporary workers (as opposed to introductory services) so that VAT was chargeable on the whole consideration they received from clients.

The appellants (collectively referred to as ‘Adecco’) were all employment businesses, which provided temporary staff. In relation to temporary workers, who were not employees (‘temps’), clients paid an amount representing the payments that Adecco was contractually obliged to pay the workers for the work they have done for the clients and a commission for Adecco’s services. Between 1 April 2007 and 31 December 2008, Adecco had accounted for VAT on the total amount paid by clients.

Following the FTT’s decision in Reed ([2011] UKFTT 200) that in relation to the supply of temps, only the commission element of the fee received is subject to VAT, Adecco had made several claims for repayment. They had been rejected by HMRC and its appeal dismissed by the FTT on the basis that Adecco was not supplying introductory services but the work of the non-employed temps.

The UT referred to Airtours ([2016] UKSC 21) as authority for the proposition that ‘the starting point is to consider the contractual position and then consider whether the contractual analysis reflects the economic reality of the transaction’. The FTT found that there were contracts between the temps and Adecco and between Adecco and its clients and that the economic reality was that Adecco was supplying temps as opposed to mere introduction services. The tribunal noted in particular that the temps could not work for the clients except through their agreement with Adecco, hence the definition of ‘supply’ in the contract between Adecco and the clients, which made it clear that Adecco was supplying a temp to perform an assignment. The fact that clients were not obliged to pay the temps but that Adecco was obliged to do so, whether or not it received payment from clients, was also consistent with the analysis that Adecco was providing the temps.

Read the decision.

Why it matters: The FTT had considered that its conclusion was inconsistent with the Reed decision and expressed the hope, that a higher authority would clarify the VAT obligations of employment bureaux. The UT’s decision is however not prescriptive: ‘We hope that our decision is clear but we doubt that we have provided guidance – except at a very high level - that will enable the VAT liability of other employment businesses to be determined without a thorough analysis of the contracts and an assessment of the economic reality of the particular transactions.’ The UT therefore would not comment on the FTT’s decision in Reed.

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