| HMRC Reference:Notice 700/34 (May 2005) | View Change History |
Other notices on this or related subjects
1.1 What is this notice about?
1.3 Who should read this notice?
2.1 What is a supply of staff for VAT purposes?
3. How to treat particular circumstances
3.1 Temporary suspension of an employment contract
3.3 Paymaster services for associated companies
3.4 Sole proprietors and partnerships providing professional services
3.5 Request made to a company for the supply of a director
3.7 The right of a company to appoint a director
3.8 Voluntary personal appointment of a director
3.9 Employment bureaux/agencies
This notice cancels and replaces Notice 700/34 (May 1994). Details of any changes to the previous version can be found in paragraph 1.2 of this notice.
If you need general advice or more copies of Customs and Excise notices, please ring the National Advice Service on 0845 010 9000. You can call between 8.00 am and 8.00 pm, Monday to Friday.
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741 Place of Supply of Services
This notice gives guidance on the VAT treatment of supplies of staff, including supplies made by staff agencies.
For the purposes of this notice, 'staff' includes directors and other office holders. However, some additional points are only relevant to directors and these are covered in paragraphs 3.5 to 3.8.
Special rules apply to certain services performed outside the United Kingdom (UK) or supplied to, or received from, persons who belong outside both the UK and the Isle of Man. You will find out more about these in Notice 741 Place of supply of services.
This notice has been restructured to improve readability. The technical content as conveyed in the May 1994 version (as amended by Update 1) is further amended by Business Briefs 02/04 and 10/04.
Paragraphs 2.3 Value of supply, 3.9 Employment bureaux/agencies and Section 4 Statement of Practice A. Hire of staff by employment businesses should now be read in conjunction with Business Briefs 02/04 and 10/04.
The paragraphs on the treatment of directors' fees have also been rewritten.
You can access details of any changes to this notice since May 2005 either on our Internet website at www.hmce.gov.uk or by telephoning the National Advice Service on 0845 010 9000.
You can access copies of the Business Briefs mentioned above either on the internet site www.gnn.gov.uk or by telephoning the National Advice Service on 0845 010 9000.
It is intended for businesses, including staff agencies, which supply staff.
You make a supply of staff for VAT purposes if you provide to another person, for consideration, the use of an individual who is contractually employed by you or is a director of your company. This applies whether the terms of the individual's employment with you are set out in a formal contract or letter of appointment, or are on a less formal basis. The determining factor is that the staff are not contractually employed by the recipient company, but come under the direction of that company. Consideration and value of the supply are explained in paragraph 2.3.
If your company supplies services, such as construction services, to another person but your staff continue to operate under your own direction, this is not a supply of staff, but is a supply of those services. This distinction is significant where the services may be zero-rated or exempt, or when determining whether or not the supply is made in the UK. If you are in doubt about the place of supply of your services, you should refer to Notice 741 Place of supply of services.
Whatever the nature of your business, if you make any supplies of staff, they are normally regarded as being made in the course or furtherance of your business. You must account for VAT at the standard rate.
There are a few exceptions to this rule, where supplies of staff are not always made in the course or furtherance of business and thus may be outside the scope of VAT. These include:
If you supply staff to any person who belongs outside the European Community (EC) or to a business belonging in another member state of the EC, that supply is outside the scope of UK VAT.
If you receive supplies of staff from a person who belongs outside both the UK and the Isle of Man, you must account for VAT on those supplies at the standard rate under the 'reverse charge' procedure (Notice 741 Place of supply of services).
If you make a taxable supply of staff you must charge VAT on the full amount of the consideration for the supply. As well as any fee, this includes your recovery of staff costs from the recipient such as salary, National Insurance and pension contributions.
Even if the arrangements do not involve the recipient paying these staff costs to you - for example, because the salary is paid directly to the individual or the National Insurance directly to the DSS - these amounts are still part of the consideration for your taxable supply. There are a limited number of exceptions to this, however. These are explained in a Statement of Practice, the full terms of which are set out in Section 4.
The Statement is effective from 1 April 1997. It replaces an earlier informal concession. There are three sections to the Statement. They all have the effect of excluding staff remuneration, PAYE, NICS, pension contributions and similar costs from the taxable consideration for staff secondments if these costs are paid by the recipient businesses directly to the staff and third parties and if other conditions in the sections are met.
Section A and Section C are self explanatory. If the recipient pays the relevant costs directly to the staff and third parties, you may exclude these amounts from the taxable consideration for your supplies of staff provided:
Section B is the principal part of the Statement. If the recipient pays the relevant costs directly to the staff and third parties, you may exclude these amounts from the taxable consideration for your supplies of staff provided:
It is important to remember that the amounts in question may only be disregarded from determining the consideration and value of the secondment when they are paid directly to the individual and/or third parties. If these amounts are received by you, they cannot be so disregarded and will be taken to be part of the consideration and value of the supply.
These rules apply whether you supply full-time or part-time staff. They also apply to the value of supplies received from outside the UK under the "reverse charge" procedure (Notice 741 Place of supply of services).
If your employee takes up a temporary post with another employer you are not making a supply of staff provided that:
To avoid doubt, a temporary suspension should normally be supported by evidence that:
In cases of joint employment, there is no supply of staff for VAT purposes between the joint employers. Staff are regarded as jointly employed if their contracts of employment or letters of appointment make it clear that they have more than one employer. The contract must specify who the employers are, for example 'Company A, Company B and Company C', or 'Company A and its subsidiaries'.
Staff are not jointly employed if their contract is with a single company or person, even if it requires them to work for other companies. Paragraphs 2.1 to 2.3 therefore apply. It is not accepted that there is joint employment where there is a contract with one company:
This is not an exhaustive list.
Paymaster services commonly arise in two situations:
Recovery of monies paid out by the paymaster in either of these situations is not subject to VAT as it is a disbursement (see Notice 700: The VAT guide). If a charge is made for the paymaster's services to the other companies, over and above the reimbursement of the costs paid out on their behalf, the paymaster must account for VAT on this charge. However, such supplies are disregarded where they are made between companies within the same VAT group registration.
If you are either a sole proprietor, or a partner, in a firm providing professional services (for example a solicitor or accountant) by way of business and you take up an appointment as a company director or other paid office holder (such as a secretary or treasurer) you or your partnership must account for VAT on any payment received if all the following apply:
However, if you take up an appointment as an office holder and the terms under which you are appointed treat you as an employee of the person with whom you accepted the appointment, then any fees or payments made to you personally are outside the scope of VAT.
Your company may be approached by a second company with a request for the appointment of an employee or director to serve as a director of the second company. In these circumstances the normal rules relating to supplies of staff apply and your company must account for VAT on any payment it receives for agreeing to the appointment.
Where an individual is involved in a number of companies he or she may be a director of each. Quite often one company may pay, for convenience, the total emolument the individual receives in respect of all the businesses and then recover appropriate proportions from the others.
In general, any services to which the charges relate, such as attending meetings or approving expenditure, can only be the director's supplies to the companies of which he or she is director. These services are supplied directly to the relevant businesses by the individual and not across from one company to another. Therefore there is no supply from one company to another and so no VAT is due on the share of money recovered from each company.
This often occurs in situations where one company is investing in another and is exercising a legal or contractual right to appoint a director to the board of the company in which they are investing. The director is usually selected because of their specialist knowledge and is appointed to give expert advice to the other company.
Typically a fee is charged by the company appointing the director and is paid by the company receiving the director. Where this is in respect of the director giving advice and taking an active part in the running of the other company then a supply is made by the director's original company for which the remuneration is taxable.
However, if a director is appointed by virtue of a legal or contractual right, but does not give expert advice and does not take an active part in the running of the company, then this will not be a supply for VAT purposes and any remuneration will be outside the scope of VAT.
There may be instances where an individual director or employee of your business personally arranges to be appointed to the directorship of a second company and receives payment from that company in return. Provided that this is a purely personal appointment, and is not a means for your company to deliver its services (such as consultancy services), your company is not required to account for any VAT on payments made to the appointee.
These normally operate in one of the following ways.
(a) The bureau acts as a principal, supplying its own staff to the client
The staff may be employees of the bureau, or they may be self-employed and engaged by the bureau. In either case the worker's services are provided to the bureau, which in turn makes a supply to the client. The bureau must therefore account for VAT on the full charge to the client.
(b) The bureau, acting as an agent for the client, finds workers who enter into a direct contractual relationship with the client
This is similar to an introductory service, and the bureau must account for VAT on its agency charges to the client.
(c) The bureau acts as agent for both the client and the worker
Where it acts as an intermediary bringing both parties together and as a result supplies its agency service to both parties. In this case, VAT must be accounted for on the agency charges made to both parties.
The actions of the parties and all the relevant documentation must reflect your chosen method of operation.
(referred to in paragraph 2.3)
A. Hire of staff by employment businesses
1. The new arrangements described in paragraph 2 below apply from 1 April 1997. They will continue until the Department has completed its review of the impact on employment businesses of the Conduct of Employment Agencies and Employment Businesses Regulations which were made by the DTI on 17 December 2003. The review will commence 18 months after the relevant DTI regulation comes into effect on 6 July 2004.
2. Where an employment business within the meaning of the Employment Agencies Act 1973 supplies a member of its staff (the employee) to another business which -
(a) is responsible for paying the employee's remuneration directly to the employee, and/or
(b) discharges the obligations of the employment business to pay to any third party PAYE, NICs, pension contributions and similar payments relating to the employee,
then, to the extent that any such payments as are mentioned in paragraphs (a) and (b) above form the consideration or part of the consideration for the supply of the employee to the other business, they shall be disregarded in determining the value of the supply of the employee.
B. Secondment of staff by businesses other than employment businesses
1. The arrangements described in paragraph 2 below apply from 1 April 1997.
2. The secondment by an employer (other than an employment business within the meaning of the Employment Agencies Act 1973) of a member of its staff (the employee) to another business which:
(a) exercises exclusive control over the allocation and performance of the employee's duties during the period of secondment;
(b) is responsible for paying the employee's remuneration directly to the employee; and/or
(c) discharges the employer's obligations to pay to any third party PAYE, NICs, pension contributions and similar payments relating to the employee,
then, to the extent that any such payments as are mentioned in paragraphs (b) and (c) above form the consideration or part of the consideration for the secondment of the employee to the other business, they shall be disregarded in determining the value of seconding the employee.
3 For the purposes of paragraph 2 above, an employer shall not be treated as seconding an employee to another business, if the placing of the employee with that other business is done with a view to the employer's (or any other person associated with him) deriving any financial gain from:
(a) the placing of the employee with the other business, or
(b) any other arrangements or understandings (whether or not contractually binding and whether or not for any consideration) between the employer (or any other person associated with him) and the other business (or any person associated with it) with which the employee is placed.
C. Placement of disabled workers under the Sheltered Placement Scheme (or any similar scheme)
1. These arrangements apply from 1 April 1997.
2. Where the sponsor of a disabled worker places the worker with a host company under the Sheltered Placement Scheme (or any similar scheme) and the host company:
(a) is responsible for paying the worker's remuneration directly to the worker; and/or
(b) discharges the sponsor's obligations to pay to any third party PAYE, NICs, pension contributions and similar payments relating to the worker,
then, to the extent that any such payments as are mentioned in paragraphs (a) and (b) above form the consideration or part of the consideration for the placing of the worker with the host company, they shall be disregarded in determining the value of placing the worker with the host company.
We would be pleased to receive any comments or suggestions you may have about this notice. Please write to:
HM Customs and Excise
Supply of Services and Public Bodies Team
Room 3/60, 100 Parliament Street
London
SW1A 2BQ
Please note this address is not for general enquiries. You should ring our National Advice Service about those.
If you have a complaint please try to resolve it on the spot with our officer. If you are unable to do so, or have a suggestion about how we can improve our service, you should contact one of our Regional Complaints Units. You will find the telephone number under ‘Customs and Excise - complaints and suggestions’ in your local telephone book. Ask for a copy of our code of practice ‘Complaints and putting things right’ (Notice 1000). You will find further information on our website at http://www.hmce.gov.uk.
If we are unable to resolve your complaint to your satisfaction you can ask the Adjudicator to look into it. The Adjudicator, whose services are free, is a fair and unbiased referee whose recommendations are independent of Customs and Excise.
You can contact the Adjudicator at:
The Adjudicator's Office
Haymarket House
28 Haymarket
LONDON
SW1Y 4SP
Phone: (020) 7930 2292
Fax: (020) 7930 2298
E-mail: adjudicators@gtnet.gov.uk
Internet: http://www.adjudicatorsoffice.gov.uk/
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