A group of employment agencies, Adecco, has lost their case at the Court of Appeal (CoA) in relation to VAT charged on its provision of services to its clients.  The case concerned the provision of non-employed temporary workers.  These workers were people that Adecco had a contract with to help find temporary work but there was no obligation on Adecco to actually find work for the workers.  If no work was found then Adecco had no obligation to pay the worker.  Adecco then had contracts with its clients for the provision of its temporary workers services.

Adecco had argued that the only supply it was making in regard to non-employed temporary workers was that of an introductory service along with certain administrative services, such as paying the worker and withholding the necessary payroll taxes.  The services provided by the workers were services between the worker and the client.  Adecco held that VAT should only be chargeable on the much smaller element of introductory services and certain administrative services.  This would have been helpful to Adecco where it supplied staff to businesses that made exempt supplies, such as banks, insurance companies and hospitals as they are less able to reclaim VAT.

The CoA held that while the clients had some control over the workers output that overall the contracts were between Adecco and the temporary workers and Adecco and the client.  There were no contracts between the temporary workers and the client and this contractual position reflected the economic reality.  If the clients didn’t pay Adecco, Adecco still had a requirement to pay the temporary workers. Therefore VAT was due on the whole provision of staffing services.

The decision can be found at: Adecco UK Ltd & Ors v The Commissioners for HMRC – Find case law (nationalarchives.gov.uk)

Determining what is being supplied to an end consumer can be difficult as this case highlights and what are taxable supplies can be complicated questions.  This is a subject matter we are very experienced with.  Please do contact us if you have any questions around VAT.