Are you looking for VAT relief on your supply of staff? 

VAT relief for supply of staff is a complex area. Summarised below are the key VAT issues and considerations for recruiters and employers in the private and public sector.

For a full summary of staff concessions and reliefs with links to relevant HMRC guidance and case law examples, please download our guide. 

Key definitions

Supply of staff

You make a supply of staff when you provide another person or company with an individual, who is either contractually employed or otherwise engaged by you (for example, a contractor or company director) in return for a consideration. 

The individual supplied would normally come under the day-to-day direction and control of the organisation you’ve supplied them to (the ‘host’). Via recent case law precedents (see VATHLT2085), day-to-day control is taken to mean operational control as opposed to dictating how someone might perform certain tasks.

Operational control

Operational control means having oversight over when, where and what work the individual performs. For example, a doctor may be self-sufficient when it comes to treating patients, but they would be operationally controlled if the host organisation instructs them on working hours, what facility they should work from and what patients they should be treating.

The supplies of staff can often look similar to labour intensive services. However, these may fall into one of the available VAT exemptions on the basis the contractor (supplier) maintains direction and control of the individual workers. Such service contracts are not for supplies of staff and are not specifically addressed in this article.

What is the general VAT position?

In general, any supply of staff for a consideration is subject to UK standard rated VAT where supply is in the UK. However, several exemptions and concessions exist which can be utilised to relieve the VAT burden. These are especially important when staff are supplied to organisations who cannot reclaim all their VAT costs.

Which sectors are commonly impacted?

This often includes staff supplied to the health and care sectors, education, social housing, charities and non-profits, financial firms, and many public bodies.

What’s the difference between exemptions, VAT concessions and outside the scope?

VAT exemptions have a mandatory legal footing. No VAT can be charged if an exemption applies. Any VAT costs incurred making an exempt supply are usually irrecoverable.

Concessions, on the other hand, are HMRC allowing the option to divert from the normal legal position. They are either formal or informal but must be evidenced as forming part of their public policy. Therefore, an individual HMRC letter addressed to a business cannot constitute a concession for other businesses to rely on.

It is important to note that both exemptions and concessions must be read and applied narrowly. For example, a trader cannot take the spirit of a concession and apply it to a slightly different scenario.

Supplies that are outside the scope of VAT results in no VAT being chargeable on the sale and figures excluded from the VAT return.

How do I apply a concession?

Subject to the terms of a specific concession, recent case law (ref: Delta and 1st Alternative Medical) indicates a trader should make a positive election. This might include recording formal minutes or agreeing the adopted status with HMRC.

Historically, HMRC has generally accepted that if the terms of the concession are met, and VAT was not charged, then the concession was applied. This was arguably irrespective if the concession was, or was not, purposefully considered.

It is also important to note that concessions cannot normally be applied retrospectively. For example, it is not uncommon for a customer to highlight to a supplier the existence of a concession and ask for VAT to be credited after the supply has occurred and been invoiced. In this situation it is unlikely that the concession can be used as it was not applied at the correct time.

Download our guide

For a full summary of staff concessions and reliefs with links to relevant HMRC guidance and case law examples, please download our guide.

Get in touch

If you have any questions on VAT relief on your supply of staff, please contact Scott Harwood.