Haslers VAT Consultancy Saves Recruitment Agency £250k
ABC Recruitment Ltd is a multi branch recruitment business specialising in recruitment for the health, education and IT sectors. This case study concerns ABC´s healthcare division.
ABC had always charged VAT on its supplies of healthcare staff but had applied the Staff Hire Concession to enable the VAT to be restricted to the profit margin. However, in 2003, ABC became aware that a number of competitors in the Healthcare market were not charging VAT at all. ABC first telephoned and then wrote to the VAT Advice Service querying this and, after an exchange of correspondence and sample contracts, Customs & Excise (as they then were) provided a response that ABC was a principal in the supply of care and that the services were therefore exempt from VAT.
As ABC had other divisions whose supplies were VATable, this ruling made ABC partly exempt and ABC should have restricted the input VAT it claimed using the standard partial exemption method. Customs did not point this out and ABC failed to make the restriction, continuing instead to claim back all of its input VAT on expenditure, whilst not paying any VAT on its Healthcare division income.
About a year after seeking the advice from Customs, ABC received a VAT inspection which lasted two days. The Officer discovered that ABC had not been carrying out partial exemption calculations and issued an assessment of c£23,000. ABC appealed to the issuing Officer on the grounds that partial exemption had not been explained at the time of the ruling.
Soon after, the Officer requested copies of contracts and evidence of the status of ABC and suggested that the ruling that ABC´s healthcare division was exempt from VAT may not be correct. Correspondence followed and continued for more than a year, during which time the Officer questioned and re-questioned the accuracy of ABC´s exempt status.
This finally culminated in the Officer ruling that ABC´s healthcare supplies were not as principal but rather as a supplier of staff. The assessment of c£23,000 was withdrawn and replaced with an assessment of c£215,000 unpaid VAT covering the period back to when ABC ceased charging VAT to its customers.
ABC handled much of the enquiry without assistance but when it became clear that the Officer intended assessing for a substantial sum of unpaid VAT, ABC sought the assistance of Haslers´ specialist VAT service.
ABC had informed their clients of Customs ruling that its supplies were VAT exempt and, on Haslers advice, notified its clients of the imposition of VAT on its supplies from the date of the Officer´s ruling.
Haslers appealed against the assessment to H M Revenue & Customs Appeals Team on the grounds that ABC had been misdirected, both by the initial ruling and then by the visiting Officer who had assessed for VAT on one basis and then changed his mind and assessed the same periods on a different basis. Haslers produced a detailed Letter of Appeal and Statement of Case.
To ABC´s delight, Customs withdrew the assessment in the sum of c£215,000 and confirmed that they would not be seeking to re-issue the assessment for overclaimed input VAT. ABC saved c£238,000 in VAT which, with interest and penalties would have amounted to more than £260,000.
There are a number of interesting points to come from this case:
- The supply of staff/care in the Healthcare market continues to cause major problems for the Industry. The one thing that is very clear is that Customs have now concluded that recruitment businesses do not act as principals and so any businesses still not charging VAT are likely to face the fist of Customs and large VAT assessments sooner rather than later;
- The Staff Hire Concession which creates the availability of VAT being charged on the margin only is under review and the result of that review is expected very soon. If this concession is removed, it will be too late for businesses to apply it retrospectively to limit their VAT exposure.
- Misdirection is covered by Extra Statutory Concession. This means that the VAT Tribunal has no jurisdiction to hear appeals on the grounds of misdirection.
If you are experiencing a similar problem/issue or are interested in finding out more about Haslers VAT Consultancy Service please contact Debra Dougal on 020 8418 3426 or E-mail debra.dougal@haslers.com
Related Services
VAT
VAT
VAT
Tax Consultancy
Tax Consultancy
Tax Consultancy
