New tax rules could add £400m to cost of hiring temps

New tax rules could add an extra £400m to the cost of hiring temporary workers in certain sectors, the Recruitment and Employment Confederation (REC) has warned.

The government announced plans in the Budget earlier this year to abolish the staff hire concession, which enables employment agencies to charge VAT solely on the commission element of their supplies, rather than the whole cost of placing a temporary worker, from April 2009.

An REC analysis of the new rule - which will result in VAT of 17.5% being charged on the wages of temporary staff - found that it will hit the charity, social care, education, social housing and financial services sectors the hardest.

Healthcare would be the biggest loser as costs will soar as VAT is charged on the wages of locum doctors and specialist medical staff supplied through agencies.

Anne Fairweather, REC head of public policy, said: "Evidence from the affected sectors suggests that the cost could be to the tune of £400m. This will have a dramatic impact on the supply of staff to work with some of the most vulnerable in society."

The REC said it was keen to work with HM Revenue & Customs to find "viable solutions" to the problem.