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Planned VAT change could add to cost of recruiting contractors and temps

Published on Oct 2, 2008

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If you are looking for details of the VAT change in the Pre-Budget Report (24/11/2008) - click here. The main rate of VAT will fall from 17.5% to 15% until the end of December 2009.

The representative body for recruitment agencies says that planned VAT changes from April 2009 will add a huge cost to the recruitment of temporary staff and contractors.

The Recruitment & Employment Confederation (REC) estimates that the removal of the VAT Staff hire Concession from next year will add £400m to employers' costs and eventually lead to a cut in the number of temporary and contract opportunities in the UK.

Under current VAT rules, employment agencies (and other firms) charge Value Added Tax on their 'profit margin', not on the total amount received.

The measure will also affect other businesses which cannot recover VAT in full - such as companies in the health, education, financial and charitable sectors.

Kevin Green, REC's chief executive, said:

"The net result of having to add VAT to the overall cost of taking on temporary and contract workers is likely to be less flexibility, higher costs for UK businesses and fewer jobs available. We are looking for constructive discussions on how we can avoid the fallout from the added costs that the removal of this concession will lead to, at a time when the UK economy can least afford it."

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