The Chancellor announced that VAT will increase from 17.5% to 20% from 4 January 2011.

Martin Holden, partner at accountants Saffery Champness, and head of its professional and consultancy services group, told Recruiter that the rise in the VAT could cause cash flow problems for some recruiters.

Recruiters will have to find extra cash to pay the Revenue before they themselves get paid by the client, and they may not also be able to get the increased funding from invoice finance companies to fill the gap, he explained. 

“For those businesses that are already distressed the question is will they be able to cope with the VAT burden?”

Holden added: “Overall, I don’t think the Budget is overly harsh, and I don’t think the recruitment industry should be any more adversely affected than many other industries.” 

Sue Dodd (pictured), director of Agile Intelligence, told Recruiter that the Budget fully confirmed both the importance of the private sector in securing economic recovery, and the recruitment sector’s reliance on the private sector to create jobs. She said this was important “so that the fragile improvement we have seen can continue”.

Dodd added: “Any recruiters working the public sector will need to review their position.”