In Adecco UK Ltd and Others v HMRC [2015] UKFTT 0600 (TC), the FTT has considered the VAT liability of an employment business in respect of work carried out by temporary workers.


The taxpayer provided recruitment services. It provided its clients with three types of temporary workers: employed temps, non-employed temps and contract workers. The appeal was only concerned with non-employed temps.

The taxpayer accounted for VAT on the full charge paid by its clients for the services of  temps. In other words, it accounted for VAT on both the charge paid by the client (which represented the wages paid to the temp) and it accounted for VAT on the charge it retained (the commission element).

Following the decision in Reed Employment Ltd [2011] UKFTT 200 (TC), in which the FTT held that an employment bureau was not liable to account for VAT on the element of the charge representing wages, the taxpayer submitted repayment claims to HMRC.

HMRC rejected the taxpayer’s claims on the basis that it supplied the services of non-employed temps and was not merely supplying the service of introducing temps to its clients. There were other grounds for rejection of the claim, such as whether the claim was in time and whether HMRC had a defence of unjust enrichment, but the preliminary issued before the FTT for determination was the question of liability.

The taxpayer argued that the economic reality of the contracts was for it to provide a service  of introducing candidates for temp roles to its clients. The consideration for doing this was the commission element of the payment paid by the client. The element which represented wages was not consideration for any supply made by it.

The FTT’s decision

The taxpayer’s appeal was dismissed. The FTT held that the taxpayer was liable for VAT on the whole amount received by clients ie the wages and the commission elements.

In reaching its conclusion, the FTT analysed the contractual position.

Both parties accepted that there was no contractual relationship, actual or implied, between the temp and the client. There was a tripartite arrangement between the temp, the taxpayer and  the client. The temp contracted with the taxpayer, and the taxpayer with the client. There was no need for a contract between the temp and the client.  The FTT also concluded that there was no legal relationship between the temp and the client.

In considering the contractual position, the FTT considered the legal position between the taxpayer and the temp on the one hand and the temp and the client on the other. A key factor was the obligation of the taxpayer to pay the temp even if the client did not pay the taxpayer. This meant that the client received workers who would carry out the assignments but to whom it had no responsibilities such as the payment of wages. In the FTT’s view, the temp owed a legal obligation to the taxpayer to carry out the assignment and the taxpayer owed the temp a legal obligation to pay the temp for the work he carried out. At the same time the taxpayer owed the client a legal obligation to have the work carried out by the temp and the client owed the taxpayer a legal obligation to pay for that work.

The FTT emphasised that the contractual position was not determinative of by and to whom supplies were made for VAT purposes. To determine the correct VAT treatment, the FTT considered relevant case law on the VAT treatment of tripartite arrangements and the impact of “economic realities” of the arrangements. The key question was whether the “economic realities” of the arrangements meant the contracts did not reflect the VAT supply.

The FTT considered the Reed Employment case but rejected the reasoning of the FTT in that case. The FTT also considered Redrow [1999] UKHL 4, Loyalty Management C-53/09, LMUK/ Amia [2013] UKSC 15, Baxi Group Ltd C-55/09, WHA [2013] UKSC 24 and Airtours Holidays Transport Ltd [2014] EWCA Civ 1033.

From the case law, the FTT identified the following two principles:

  • if B agrees to pay A to provide goods or services to C, and C agrees with B to pay for those goods or services, then the Redrow approach applies and the recipient is determined according to who provides the consideration
  • however, where a Redrow analysis does not lead to tax on final consumption (where A makes a supply to B, but B does not on-supply to C) then applying Baxi/WHA, economic reality requires the supply to be seen as made to the final consumer.

The FTT held that the taxpayer’s case fell within 1 above and so applying the Redrow approach, the taxpayer was the recipient and had to account to HMRC for VAT on the full fees received from clients.


The FTT chose not to follow the decision of a differently constituted FTT in Reed Employment. Given the disparity between the two decisions, further appeals seem likely in order to clarify the VAT treatment of such taxpayers.

The FTT’s decision is available to read here: