The recruitment industry will be lobbying hard over the next two months to put its case for retaining the exemption from VAT for the cost of temporary staff supplied through agencies.

Her Majesty’s Revenue and Customs (HMRC) has said it is considering abolishing the exemption. As it stands, businesses only pay VAT on the agency fees.

Ann Swain, chief executive, ATSCo, said: "If organisations have to pay VAT on temps’ salaries, the cost to UK plc of using temps is going to rise significantly."

Gareth Osborne, managing director of the Recruitment and Employment Confederation (REC), said: “The outcome of withdrawing the tax concession on temporary work could be catastrophic. Recruitment costs will become prohibitive to employers and ultimately could have a hugely damaging effect across this whole sector of the industry.”

He said the REC has been engaged in discussion with HMRC for a number of years on the issue.  The Forum of Professional Recruiters is also set to pressurise the HMRC on the issue. 
HMRC says it is looking for the views of “affected businesses and other interested parties”. It adds: “Where possible, representations should be supported with evidence of existing use and impact. Any contributions must be received by August 31.”