David Thornhill, MD of Cash Simply, said “With the introduction of the Conduct of Employment Agencies and Employment Businesses Regulations, which were followed by the removal of “The Staff Hire Concession, (which when used correctly meant that VAT did not have to be charged on temporary workers wages) employment businesses have to charge VAT on the wages of workers supplied. Of course that is no big deal for VAT registered businesses who simply claim back this element as part of the “Input Tax” on their VAT return. However, for the likes of Charities not registered for VAT and therefore unable to claim back this cost on wages, it can be a commercial nightmare and next month it is only going to get worse for them.”
On the 4th January 2011, standard rate VAT increases by 2.5% to 20%. Let’s do a sum. If the cost of a temp worker is 80% of the total net invoice value, then it follows that 80% of the unrecoverable VAT will be related to the workers’ wages.
That means that for every £100 of net invoice such Charities will have to pay an extra £16 that they cannot recover!
Is there any way such Charities can put themselves on a level playing field with businesses which can claim the whole £20 VAT back as Input Tax? Well the answer is “No” but they can get pretty close by saving £16 and get back to the position they were in before The Staff Hire Concession was removed.
So how is that done? Well, it needs the right contracts but if the workers are engaged by the Charity on a short term hire contract and the payroll is outsourced to an independent payroll company that can also fund the wages, invoice them separately and become the PAYE Agent for the Charity, then as far as the Charity is concerned, it is as simple as working with an employment business but the cost of unrecoverable VAT is removed from their total costs. With the recruitment business simply charging for its administration services (on which VAT must be charged) then £16 of unrecoverable tax that Charities unregistered for VAT have to suffer for every £100 of net invoice for temporary workers can be legally avoided.
Cash Simply can provide outsourced payroll and funding service for such Charities and others not registered for VAT via it VATPAY product and it can supply all the relevant contracts and forms too. For employment businesses, working alongside Cash simply in this area VATPAY does not affect any other invoice funding deal you might have in place and such a solution could really endear you to your Charity client in a completely legal way, ensuring that both you and they have a Happy & Prosperous New Year.
For more information, please see www.vatpay.co.uk or call David on 01594 546 585
