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UK - VAT treatment of temporary workers – Upper Tribunal decision

The long awaited Upper Tribunal (UT) decision in the case of Adecco and others (Adecco) was recently published. The decision will be of importance for businesses and charities that use temporary workers, or those that have tripartite agreements in place.
Adecco contended that it only supplied introductory and payroll services to its clients, and received commission for this. Therefore, Adecco argued that it was only liable to account for VAT on its commission charge. The temporary workers provided their services to the clients, and Adecco paid the temporary workers on behalf of its clients. There were contracts in place between Adecco and the temporary workers, and between Adecco and the clients.

In reaching its decision, the UT referred to the Supreme Court decision in the Airtours case, and placed much emphasis on the contractual arrangements between the parties, and whether this reflected the economic reality of the transaction.

The UT found that since the client paid Adecco a fee and a commission, this indicated that the client believed it was paying Adecco for the provision of the temporary workers, and not merely introductory and payroll services; this appeared to be the economic and commercial reality. Consequently, Adecco should account for VAT on the full consideration, including the payments made to the temporary workers.

Interestingly, the UT mention that they hope their decision is clear, but they doubted that they had provided guidance – except at a very high level – that would enable the VAT liability to be determined without a thorough analysis. At the same time, the UT stated that “the liability in any particular case depends on the construction of the contractual provisions and interpretation of the facts”, and “…are always open to debate”.

The fact that the outcome of the decision is inconsistent with the Reed Employment decision in 2011, suggests that further clarification on the VAT treatment of transactions in this area is required. Due to the significant amount of tax at stake in this area, it may not be the last we hear of this issue.

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