Taxman's "tactical" withdrawal from court battle could harm recruiters

THE TAXMAN’S expected decision to not appeal against a VAT tribunal ruling it lost has been described as a clever “tactical move” could harm the recruitment agent industry.

Reed Employment won a first tier tribunal in March in which it argued that it should only pay VAT on the commission fee charged to clients, and not the entirety of the charge.

HM Revenue & Customs has not confirmed whether it will appeal the decision. But Hannah Dobson, VAT director of Smith & Williamson, said that HMRC sources have indicated it will not appeal.

“This is a fantastical tactical ploy,” Dobson said. “A case through the first tier tribunal is only persuasive on others, and not binding. HMRC will turn around and say no-one else can rely on the ruling, it only applies to Reed.

“We cannot have Reed being allowed to operate in one way in an industry and everyone else in another. But that said, I think HMRC will challenge anybody else that is thinking of operating like Reed. It is in a position where it can challenge others.”

This will mean that recruitment businesses will be out of pocket for “another 12 to 24 before another court case comes out”, she added. “It has potentially delayed any repayments of VAT to anybody but at least another two years.

“If this had been binding, any client that had gone back to the temporary agency and asked for VAT back, the agency could have gone to HMRC and HMRC would have paid it back,” she said