The Forum of Professional Recruiters (FPR) has warned agencies about proposed changes to the VAT concessions currently offered to the banking, insurance and not-for-profit sectors.

Recruitment companies that provide temporary workers to hirers on an employment agency basis are only required to charge VAT on their commission.

Wage-related payments are usually VAT-free, which is beneficial if the hirer is unable to recover all the VAT it incurs, with similar concessions applying to employment businesses.

However, HM Customs & Excise is expected to withdraw these concessions in 2006.

“Ending the concessions will make recruitment more expensive,” said FPR executive committee member Will Shepherd. “The challenge we are facing is how to provide a top-class service to clients without them incurring extra costs.”