In Adecco UK Limited and others v HMRC4 , the Court of Appeal has confirmed that VAT was payable on the supply of non-employed temporary workers to clients.


Adecco UK Limited (the taxpayer), is an employment agency supplying its clients (the clients) with temporary staff, including non-employed temporary staff. These workers are not employed by the taxpayer but may be introduced to its clients to undertake assignments. During such assignments, there is no contractual relationship between the client and the worker.

The taxpayer and the clients enter into a contract, which is the same regardless of whether the worker is employed, not employed or contracted. The client is obliged to pay the taxpayer a fee for the work carried out by the worker.

The taxpayer and the temporary worker enter into a contract whereby the taxpayer is the employer and remunerates the worker.

The taxpayer attempted to reclaim overpaid VAT in respect of the non-employed workers’ remuneration paid by the client following the decision in Reed Employment Ltd v Revenue and Customs Commissioners5 .

The taxpayer argued that it only introduced the non-employed workers to its clients and the workers (rather than it) provided the services to the clients.

HMRC refused the claim and the taxpayer appealed. 

Both the First-tier Tribunal and the Upper Tribunal (UT) rejected the taxpayer’s argument that it was merely supplying introductory and ancillary services to its clients. Both tribunals concluded that the taxpayer supplied the non-employed temporary workers in return for payment and it was liable to account for the VAT on the fees charged.

The taxpayer appealed to the Court of Appeal.

Court of Appeal judgment

The appeal was dismissed.

The issue for the Court of Appeal to determine was whether the workers’ fees charged by the taxpayer in relation to non-employed temporary workers was subject to VAT. To determine this, the Court considered whether the taxpayer or the non-employed workers, supplied services to the clients.

The Court concluded that no contract existed between the temporary workers and the clients, thus the workers did not provide their services under any such contract. Instead, the contracts existed between the taxpayer and the workers and taxpayer and the clients. The workers were under the control of the taxpayer rather than the clients.

In the Court’s view, the taxpayer did not merely perform administrative functions. It held rights to terminate and suspend employment and remained responsible for paying the workers on its own behalf even if the client did not pay the taxpayer or decided to reject the temporary worker.

The Court noted the UT’s point that the contract between the taxpayer and a temporary worker proceeded on the basis that unauthorised absence could breach the obligations owed by the taxpayer to the end clients.

The fees charged to clients were not split into workers’ remuneration and commission for itself and instead, clients were charged one single sum.

The Court considered that as a matter of contract and of economic reality, the services were supplied to the clients rather than the taxpayer.

Accordingly, the taxpayer was liable to account for the VAT on the total fees charged to its clients. The Court held that the taxpayer had supplied the services of its non-employed workers to its clients and that their salaries did form part of its supply for VAT purposes.


In providing helpful guidance regarding the VAT treatment of supplies of this nature the Court said that Reed Employment had been wrongly decided. The VAT liability of other employment agencies will need to be carefully considered and a thorough review of all relevant contracts might be appropriate.

A copy of the judgment can be viewed here