Ahead of today’s Pre-Budget Report, the government has been urged to keep current umbrella company VAT rules in place.

The chancellor, Alistair Darling, has been widely tipped to introduce new VAT rules for umbrella companies in this afternoon’s Pre-Budget Report.
 
Rob Crossland, managing director at PAYE umbrella company Parasol, told Recruiter that this would mean that recruitment firms would now face paying VAT on the full gross amount rather than the margin of the supply of labour from April 2009.

Crossland added: “I would urge the government to remember that the UK has a big recruitment industry that has been fantastic for the UK economy. Freelancing, contracting and recruitment has played a significant part in growing the economy over the past 10 years and the government should not forget that.

“If people are to find work and opportunities that are being hit by the current economic climate they want the facilities and structures in place so they can take opportunities when they arise. It may only be a short-term three month contract, but that can be the difference between losing their house or not.”

Martin  Hesketh, managing director of accountancy, tax advice and financial support services provider Brookson, said: “It seems  more likely that the government will leave things as they are and  endeavour to police the existing system more effectively or may just  ‘tighten up’ the current regime for tax relief.  This could take a number of forms  – for example introducing a standard ‘unreceipted expenses’ scale rate  across the umbrella industry or completely removing scale rate payments and requiring all legitimate expenses claimed to be receipted.  Both of these approaches would  result in service providers being prevented from selling on the basis of  differing tax positions – and that would have to be good for the industry.”     

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