The First-tier Tax Tribunal issued a controversial decision ruling that VAT is due on the full consideration received by Adecco UK Ltd and others for supplying temporary workers to clients, contradicting an earlier similar case. The Court of Appeal decided to refer the Brockenhurst College case on whether supplies of catering and performances are 'closely related' to education to the European Court of Justice for guidance. The FTT also ruled in the golf clubs unjust enrichment case that 90% of VAT claims made should be repaid, constituting a major victory for the golf clubs against HMRC's position.

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ITU
Summary
The supply of temporary
workers takes centre stage this
week with the FTT's long-
awaited decision in Adecco UK
Ltd and others v HMRC. The
decision of the FTT is
completely at odds to the
decision of the FTT in a very
similar case (Reed Employment
Ltd) which was decided in 2011.
It seems inevitable that the
matter will be appealed to the
Upper Tribunal.
The Court of Appeal has
decided to refer the
Brockenhurst College case
concerning supplies 'closely
related' to supplies of education
to the Court of Justice for
guidance on the interpretation of
EU law.
Finally, the FTT has also issued
its decision in the golf clubs
unjust enrichment (and other
issues) case. A resounding victory
for the golf clubs as the Tribunal
considers that 90% of claims
should be repaid.
9 December 2015
Adecco UK Ltd & Others – First-tier Tax Tribunal
The First-tier Tax Tribunal (FTT) has issued a controversial VAT decision in
connection with the VAT liability of the supply of temporary workers. The Judge –
Barbara Mosedale – has ruled that VAT is due on the full consideration received by the
taxpayer in connection with its supply of temporary workers to its clients rather than
just on the commission payable.
The decision is controversial as it contradicts an earlier decision of the FTT in the case
of Reed Employment Ltd which found that the supply of temporary workers, in
almost identical circumstances, was a supply of 'introductory' services and that VAT
was due only on the commission payable for that service.
In Adecco, the Tribunal has ruled that there was a tripartite arrangement. Adecco owed
a contractual obligation to its client to place a worker and the worker owed a
contractual obligation to Adecco to perform the work and take instruction from the
client. As such, the Tribunal has found that, in essence, there was a supply of services
by the worker to Adecco and a separate supply of services by Adecco to the client and,
at no point was there any supply of services by the worker to the client.
As a matter of economic reality, therefore, the services of the worker were
remunerated by Adecco (that is, Adecco provided consideration to the worker) and the
client was contractually obliged to pay Adecco for its onward supply of the worker. As
such, the whole of the payment (including the wages, PAYE, NI and commission)
from the client to Adecco was consideration for that supply and the whole of the
consideration was liable to VAT at the standard rate.
Comment – while the decision is binding only on the parties to the appeal, it
does throw the whole question of the VAT liability into the air. The Judge even
conceded that the result was unsatisfactory but considered that, in the
circumstances, given the value of the tax at stake - approximately £12 million –
the matter would inevitably be appealed to a higher court. Businesses involved
in the supply of temporary workers will have to await the result of any appeal
before they can be certain of the appropriate VAT treatment. Given that, in
reality, despite the regulatory regime under which they operate, employment
agencies generally act as agents rather than as principals it is difficult to see
how VAT is due on the full payment received from the client. It will be for the
higher courts to decide.
Issue33/2015
VAT & Temporary Workers – the
plot thickens!
Indirect Tax Update

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GRT100456
Court of Appeal
Brockenhurst College
The Court of Appeal has decided that, in this case, it requires the assistance of the Court of Justice of
the European Union on the correct interpretation of the VAT Directive. The issue in this case is
whether the supply to members of the public by the college of catering services (from its training
restaurant) and of the right to attend live performances staged by the college are supplies that are
'closely related' to the supply of education which the college provides to its students.
The VAT Directive stipulates that the provision of children's or young people's education and the
supply of goods or services 'closely related' thereto shall be exempt from VAT. However, there is no
legal definition of the term 'closely related' provided by the Directive.
In Brockenhurst College (as with many similar Colleges), the students enrol on catering and
performing arts courses. As part of those courses, they gain practical experience by, in the case of
catering, providing restaurant services to members of the public or, in the case of performing arts,
taking part in the production of live entertainment where members of the public buy tickets.
The FTT and Upper Tribunal have ruled in favour of the College that such supplies – albeit supplies
to the public – are supplies that are closely related to the underlying supply of education. HMRC
does not agree and has appealed to the Court of Appeal. The Judges consider that it is necessary to
seek a preliminary ruling from the Court of Justice and will make a referral in due course.
Comment
One would have
thought that three
eminent judges of the
UK's court of appeal
would have had no
difficulty in deciding
what the phrase 'closely
related' means.
Seemingly, this is not
the case and the matter
will now go to the
CJEU.
In light of the decision
to refer, it is likely to be
a couple of years before
the final decision is
made.
The Berkshire Golf Club and others
Comment
Either or both of the
parties to this decision
have the right to apply
for leave to appeal.
Given the FTT's
decision that 90% of
VAT claimed should be
repaid, it is conceivable
that HMRC may appeal
on that point.
However, we
understand that the
golf clubs are unlikely
to appeal any of the
points further.
Affected golf clubs
should ensure that
claims are compliant in
accordance with
HMRC's recent Brief.
First-tier Tax Tribunal
The FTT has also issued its judgment in connection with the golf clubs 'unjust enrichment' issue.
Readers will recall that, following defeat on the substantive issue of whether 'green fees' paid by
visitors to golf clubs were VAT exempt or taxable, HMRC took up the argument of whether
repayment of any VAT to a golf club would amount to unjust enrichment.
After taking evidence from four test case golf clubs and after listening to expert opinion from two
eminent economists, the FTT has concluded that while full repayment of claims would unjustly
enrich the golf clubs, 90% of the claims should be paid. In other words, the extent to which any club
would be enriched is, in the FTT's view, only 10%. This is a major victory for the golf clubs as
HMRC's position was that clubs would be enriched by a much higher amount.
The Tribunal has also decided some other issues in this case. Firstly, it has concluded that the supply
of 'corporate' days and supplies through tour operators should be subject to VAT at the standard
rate. Secondly, the FTT has ruled that, as far as course expenditure is concerned, if the course is also
used for taxable purposes (tee sponsorship / advertising and buggy hire), such expenditure should be
regarded as 'residual' and any input VAT incurred on those costs can be reclaimed by a golf club in
accordance with its agreed partial exemption formula.
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
Andrea Sofield London & South East andrea.sofield@uk.gt.com (0)20 7728 3311