16th January 2012

Contractor agencies reminded of VAT duties

Agencies working for umbrella company contractors and others have been reminded of their duties regarding VAT in certain areas of contractor tax.

Sectors such as healthcare, charities and financial services were left somewhat uncertain of their tax positions when the government confirmed last August that recruiters need to change the way in which they charge VAT.

Now agencies have come under pressure from clients regarding the issue, prompting the Recruitment and Employment Confederation (REC) to issue a statement confirming HM Revenue & Customs' (HMRC) position on the matter and noting the Reed tribunal ruling which ignited the debate to begin with.

Tom Hadley, the REC's director of policy and professional services, remarked: “We will continue to remind recruiters and client organisations of the current state of play.

“Any agency deciding not to charge VAT without having previously obtained detailed legal and tax advice would be taking a significant risk and would essentially be engaging in a game of Russian roulette with the taxman.”

He added that the contractor tax issue will be open for challenge against the taxman in the future, but for now the main priority is to “avoid an unlevel playing field where agencies who are doing the right thing and following the HMRC steer are penalised in the market”.