Changes to the VAT rules governing temporary staff will significantly raise costs for some companies and could force a rethink of their employment strategies. The Chancellor expects to raise £150m in 2009 and £125m in 2010 by withdrawing a VAT concession on staff hire from April 2009. This would affect a wide range of industries, including banking, insurance, health, charities and schools. Currently, employment agencies are for tax purposes allowed to exclude the wages element from staff they supply, and to account for VAT solely on their margins. But from April 2009, businesses will have to add 17.5 per cent to the cost of temporary staff. This could prompt companies to employ fewer seasonal staff. If organisations have to pay VAT on temps' pay and not just the recruiters' margin, the cost of using temps is going to rise significantly.
The Independent