VTAXPER67300 - Particular trades: employment bureaux: how to decide
As with any situation where the correct VAT treatment needs to be ascertained, the key is to establish the facts. How a bureau has accounted for VAT historically, or how it might set out its case for being an agent in e.g. an Error Correction Notification or Clearance request, might well not provide all the information needed to make an informed decision.
A number of leading cases have considered how to determine the nature of a supply and who is making it. The approach is to review the contracts and then consider whether they reflect the economic and commercial reality (e.g. see 2017 Adecco Upper Tribunal judgment, paragraph 43).
The contracts are important because they formally set out each party’s rights and obligations towards each other. You should obtain copies of the actual signed contracts in effect for the period of time under consideration. Since there will be multiple parties involved (typically employment bureau, worker and the client) you need to obtain copies of all of the contracts in operation.
The courts have considered the impact of contracts on the VAT analysis. In comments that have stood the test of time by being spoken of approvingly in judgments in subsequent cases, the High Court in Reed Personnel Services Ltd, QB [1995] STC 588 provided guidance on the general principles when examining tri-partite situations:
‘… the concept of making a supply for the purposes of VAT is not identical with the performance of an obligation for the purposes of the law of contract, even where the obligation consists in the provision of goods or services…in consequence, the true construction of a contractual document may not always answer the question - what was the nature of the VAT supply in the case?
Thus, as well as the contracts, any other relevant information should also be considered, for example: marketing material (including website information, which should be captured and saved in case it is later changed or deleted), job adverts, “seat notes” or handbooks used by the bureau as part of its processes, correspondence, copy sales invoices, sample time sheets and pay advices.
A key point is consistency. It is important to ensure that the actions of bureau, worker and client are consistent with what they have agreed in the package of documentation you have assembled.
In Adecco the courts found that the contractual position reflected the economic reality. There was a contract between Adecco and the worker and a contract between Adecco and the client, consistent with the bureau’s status as principal in making a supply of staff. There was no contractual relationship at all between the worker and the client so the bureau could not have been acting as an agent on behalf of either the client or the worker.
In line with the approach set out by the High Court judgment of 1995 in Reed and subsequent authorities, each case must be decided on its own merits as decisions are dependent upon the facts of the case - small differences may result in the decision in one case being inapplicable in another (see paragraph 68 of the Supreme Court judgment in HMRC -v Aimia Coalition Loyalty UK Limited [2013] UKSC 15.