Clients not signing up to new model

Wed, 25 Mar 2009

With a week to go before the removal of the VAT staff hire concession, clients of recruitment agencies have been reluctant to sign up to a new employment model that could potentially save them millions of pounds.

The main feature of the new model is that clients employ agency workers direct. This  avoids them having to pay VAT on wages. 

Kevin Barrow, a partner in the recruitment group at law firm Blake Lapthorn, told Recruiter there were three main reasons for this reluctance.

• The employment risk that if they employ this category of worker directly they will have to offer them the same benefits, as ‘normal staff” and that failure to do so could lead to discrimination claims.  However, as Barrow points out,  “temporary workers are already protected in law.
• The cost and hassle involved in setting up a subsidiary. “This needs to be balanced against the savings from lower VAT charges,” says Barrow. 
• The banks, who are likely to be badly hit by the removal of the concession, are nervous about being seen to ‘avoid tax’.

Barrow said that although recruiters and their clients were “at the talking stage”, because of the large potential savings involved,  he expected the new model or variations on it would be taken up after 1 April.  

 See ‘Foolish to ignore legal changes’, Recruiter 18 March.