© Crown copyright 2012
This publication is licensed under the terms of the Open Government Licence v3.0 except where otherwise stated. To view this licence, visit nationalarchives.gov.uk/doc/open-government-licence/version/3 or write to the Information Policy Team, The National Archives, Kew, London TW9 4DU, or email: firstname.lastname@example.org.
Where we have identified any third party copyright information you will need to obtain permission from the copyright holders concerned.
This publication is available at https://www.gov.uk/government/publications/vat-notice-70034-staff/vat-notice-70034-staff
This notice replaces previous versions of Notice 700/34 ‘Staff’. Details of any changes to the previous versions can be found in paragraph 1.2 of this notice.
1.1 What is this notice about?
This notice explains the VAT treatment of supplies of staff including supplies made by staff bureaux. The term ‘staff’ includes directors and other office holders. However, there are some additional situations that apply only to directors and these are covered in section 4.
There are special rules for certain services performed outside the United Kingdom or supplied to, or received from, persons who belong outside both the UK and the Isle of Man. You can find out more about this in Notice 741A ‘Place of Supply of Services’.
Some other notices on related subjects are:
- 700 The VAT Guide
- 701/2 Welfare
- 701/31 Health Institutions
- 701/57 Health Professionals
1.2 What has changed?
This notice has been restructured to improve readability. It also reflects the withdrawal of the Staff Hire Concession. Consequently, the text of the Statement of Practice reproduced in the Appendix has been changed to reflect this.
1.3 Who should read this notice?
This notice is intended for anyone who supplies staff including staff bureaux. If you supply other services please see paragraph 2.4.
2.1 What is a supply of staff?
You make a supply of staff for VAT purposes if, for a consideration, you provide another person with the use of an individual who is:
- contractually employed or otherwise engaged by you
- is a director of your company
For more information about consideration see paragraph 2.3.
There is a supply regardless of whether the terms of the individual’s employment or engagement with you are set out:
- in a formal contract or letter of appointment
- are on a less formal basis
What is important is that the staff are not contractually employed by the recipient of the supply, but come under the direction of that person.
If your business supplies services, such as construction services, to another person but your staff continue to operate under your direction, this is not a supply of staff. It is a supply of those construction or other services. This difference is important where the services may be:
- zero-rated or exempt
- 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 741A ‘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 as part of your business. You must account for VAT at the standard rate.
There are a few exceptions where supplies of staff may be outside the scope of VAT. These include:
- secondments between and by government departments which require specialist knowledge that cannot be obtained from the private sector
- secondments between National Health bodies, and
- some secondments between local authorities and by local authorities where they have a statutory obligation or monopoly
If you supply staff to any person who belongs outside the European Union (EU) or to a business belonging in another Member State of the EU, that supply is outside the scope of UK VAT.
If you receive supplies of staff from someone 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. This is explained in Notice 741A ‘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. ‘Consideration’ is what you are given in exchange for the supply. It can be any form of payment in money or in kind, including anything which is itself a supply. As well as any fee this includes any staff costs you recover from the recipient of your supply such as:
- National Insurance, and
- pension contributions
VAT is due on the full consideration. This includes payments by the recipient direct to the worker, including:
- National Insurance contributions
- PAYE, and
- similar items
There are, however, a limited number of exceptions and these are explained in a Statement of Practice which you can find in the Appendix.
2.4 Supplies other than staff
If you supply something like care services your supply may be exempt from VAT. For more information about this see Notices 701/57 ‘Health professionals’ and 701/2 ‘Welfare’.
3. Specific situations
3.1 Temporary suspension of an employment contract
If you suspend an employee’s contract to enable them to take up a temporary post elsewhere you are not making a supply of staff provided that:
- the temporary post is organised on the employee’s own initiative, and
- the second employer issues to the employee a new contract or letter of appointment
To avoid doubt a temporary suspension should normally be supported by evidence that:
- there is an agreement with the first employer that the employee is to be transferred for a fixed or open-ended period, often with an entitlement to return
- there are new conditions of employment with the second employer
- the second employer has control over the terms and conditions of employment, and
- the second employer fixes the salary
3.2 Joint employment
Where staff are jointly employed there is no supply for VAT purposes between the joint employers. Staff are jointly employed if their contracts of employment or letters of appointment make it clear that they have more than one employer. The contract must expressly 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 contracts are with a single company or person, even if it requires them to work for others. Paragraphs 2.1 to 2.3 apply in that case. There is no joint employment where for example there is a contract with one employer:
- which lays down that the employee’s duties include assisting others
- that the employee will work full-time for another
- where the job title shows that the employee works for a group of associated companies (such as a group accountant)
3.3 Paymaster services
Paymaster services can involve one company paying salaries and other expenses such as National Insurance and pension contributions. They commonly occur between associated companies in two situations:
- where employees are jointly employed by two or more companies and one company undertakes to pay salaries and the other expenses which it then recovers from the other joint employers
- where each of a number of associated companies employs its own staff, but one company (the paymaster) pays salaries and other expenses on behalf of the others who then pay their share of the costs to the paymaster
Recovery of monies paid out by the paymaster in either of these situations is not subject to VAT as it is a disbursement. For more information about this see Notice 700 ‘The VAT guide’.
You may charge the other companies for your paymaster services. In that case you must account for VAT on any amount charged over and above the reimbursement of the costs paid out on their behalf. However, these supplies are disregarded where they are made between companies within the same VAT group registration.
3.4 Sole proprietors and partnerships providing professional services
This applies to sole proprietors or partnerships in business providing professional services (for example as a solicitor or accountant). If you take up an appointment as a company director or other paid office holder (such as a secretary or treasurer) the business must account for VAT on any payment received if all the following apply:
- the appointment results from the professional expertise which you exercise in your business or in the partnership business
- your duties as a director or other office-holder involve, at least in part, the use of that expertise, and
- you are a partner and the payments accrue to the partnership and are not retained by you personally
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 making the appointment, then any fees or payments made to you personally are outside the scope of VAT.
4.1 Supply of a director
Your company may be approached by a second company to provide 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.
4.2 Common Directors
An individual may act as a director of a number of companies. For convenience one company may pay all the director’s fees and then recover appropriate proportions from the others.
The individual’s services, such as attending meetings or approving expenditure, are supplied by the individual to the companies of which they are a director. The services are supplied directly to the relevant businesses by the individual and not from one company to another. Therefore there is no supply between the companies and so no VAT is due on the share of money recovered from each company.
4.3 The right to appoint a director
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 the director is appointed to. Where this involves 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 and the fee is taxable.
However, if a director is appointed as 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 is not a supply for VAT purposes. Any fee is therefore outside the scope of VAT.
4.4 Appointment as a director in a personal capacity
An individual director or employee of your business may personally arrange to be appointed as a director of a second company. They may receive payment from that company in return. However, provided this is:
- a purely personal appointment, and
- is not a means for your company to provide services (such as consultancy)
Your company is not required to account for any VAT on payments made to the director.
5. Staff bureaux
Staff bureaux normally operate in one of three ways.
5.1.1 Acting as a principal supplying its own staff
The staff may be employed by the bureau under a contract of service or engaged by the bureau under a contract for services. But in either case they supply their services to the bureau which then makes an onward supply as principal to the client.
5.1.2 Acting as agent for the client
Under these arrangements the bureau acts as an agent for the client and finds workers who then enter into a direct contract with the client. This is an introductory service and not a supply of staff. The bureau must account for VAT on its agency charges to the client.
5.1.3 Acting as agent for both the client and the worker
Where a bureau is an agent for both parties it supplies its services to both of them. When it has performed these introductory services it will usually withdraw and the continuing contractual relationship will be directly between the worker and employer.
Appendix: Statement of practice
(Referred to in paragraph 2.3)
This edition of the Statement of Practice replaces the previous version that contained the former Staff Hire Concession which, along with the former extension to it, was withdrawn with effect from 1 April 2009.
A. Hire of staff by employment businesses and withdrawal of the Staff Hire Concession
The effect of the withdrawal of the Staff Hire Concession is that if you are supplying staff then from 1 April 2009, you must charge and account for VAT on the full value of your supply.
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.
Your rights and obligations
Your Charter explains what you can expect from us and what we can expect from you. For more information go to Your Charter.
Do you have any comments or suggestions?
If you have any comments or suggestions to make about this notice, please write to:
HM Revenue and Customs
VAT Supply Team
100 Parliament Street
Please note this address is not for general enquiries.
For your general enquiries please phone HMRC VAT Helpline.
Putting things right
If you are unhappy with our service, please contact the person or office you have been dealing with. They will try to put things right. If you are still unhappy, they will tell you how to complain.
If you want to know more about making a complaint go to hmrc.gov.uk and under quick links, select Complaints and appeals.
How we use your information
HM Revenue and Customs (HMRC) is a Data Controller under the Data Protection Act 1998. We hold information for the purposes specified in our notification to the Information Commissioner, including the assessment and collection of tax and duties, the payment of benefits and the prevention and detection of crime, and may use this information for any of them.
We may get information about you from others, or we may give information to them. If we do, it will only be as the law permits to:
- check the accuracy of information
- prevent or detect crime
- protect public funds
We may check information we receive about you with what is already in our records. This can include information provided by you, as well as by others, such as other government departments or agencies and overseas tax and customs authorities. We will not give information to anyone outside HMRC unless the law permits us to do so. For more information go to hmrc.gov.uk and look for Data Protection Act within the Search facility.