Recruiters must keep abreast of any changes in VAT rules, which currently favour agencies.

Temp recruiters currently have the ability to pick and choose between a selection of different VAT arrangements.

Recruiters are currently able to minimise their exposure to VAT simply by selecting from a range of different invoicing procedures.

But Jonathan Evans, director of PricewaterhouseCooper’s London middle market team, said the rules could change in early 2006.

Recruiters on long-term preferred supplier contracts with clients could find themselves losing money in the worst case scenario, he said.

“VAT costs may be more than the margin recruiters earn placing their workers,” he warned delegates at the launch of the Recruitment and Employment Confederation’s annual recruitment survey.