First-tier Tax Tribunal decision

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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 – 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