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United Kingdom VAT & Duties Tribunals Decisions

You are here: BAILII >> Databases >> United Kingdom VAT & Duties Tribunals Decisions >> Eyears Ltd v Revenue & Customs [2007] UKVAT V20167 (22 May 2007)
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Cite as: [2007] UKVAT V20167
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Eyears Ltd v Revenue & Customs [2007] UKVAT V20167 (22 May 2007)
    20167

    SUPPLY — supply of support staff to clients by employment agency — employment agency responsible for paying the staff — does it do so as agent for the client or as principal — value of consideration — is VAT payable on the entire consideration or just the commission element — on the entirety — appeal dismissed

    MANCHESTER TRIBUNAL CENTRE

    EYEARS LIMITED Appellant

    - and -
    THE COMMISSIONERS FOR

    HER MAJESTY'S REVENUE AND CUSTOMS Respondents

    Tribunal: Lady Mitting

    Marjorie Kostick BA FCA CTA

    Sitting in public in Birmingham on 2 April 2007

    Colin Greenhall, VAT Consultant, for the Appellant

    James Puzey, general counsel and solicitor to Her Majesty's Revenue and Customs for the Respondents

    © CROWN COPYRIGHT 2007

     
    DECISION
  1. The decision under appeal was the ruling by the Commissioners that the Appellant's supplies of staff did not qualify for exemption under Group 7 Schedule 9 of the Value Added Tax Act 1994 ("the Act"). The decision was notified to the Appellant by letter dated 5 May 2006 and upheld on review by letter dated 14 July 2006. Until the day of the hearing, it had always been the Appellant's case that it was making an exempt supply of welfare services under Item 9 of Group 7. However, on the appeal, Mr Greenhall sought leave to amend the grounds of appeal to which, with the consent of Mr Puzey, we consented. The original ground of appeal was expressly abandoned and in its place, Mr Greenhall put forward the following two grounds:

    2. "1. The Commissioners are in error in ruling that the Appellant is a principal when it is an agent only, supplying staff for a commission. There is no consideration received for anything other than the supply of staff (which is charged for on a commission basis only).

    2. The Appellant is acting as Paymaster for each customer, making payments to staff used by each customer for wages and dealing with statutory deductions as required by Inland Revenue rules."

  2. We heard oral evidence on behalf of the Appellant from its owner and managing director, Mr Martin Bove. The Commissioners called no evidence.

    3. The Evidence
  3. The Appellant company is a specialist employment agency supplying nursery nurses on a temporary basis to local nurseries, crθches and playschools. Engagements can be for as little as a matter of hours, ranging up to a full maternity cover. For ease throughout this decision we will refer to the nursery nurses as "the Temporary Workers" and to the nurseries to whom they are assigned as "clients". The Appellant has on its books a number of Temporary Workers with varying degrees of qualifications. The company enters into an agreement with each such Temporary Worker, the agreement being headed "Contract for services for Temporary Workers" ("Terms of Engagement"). The relevant clauses of this contract are as follows (the "employment business" is the Appellant):

    4. "THE CONTRACT

    2.1 These Terms constitute a contract for services between the Employment Business and the Temporary Worker and they govern all Assignments undertaken by the Temporary Worker. However, no contract shall exist between the Employment Business and the Temporary Worker between Assignments.

  4. 2 For the avoidance of doubt, these Terms shall not give rise to a contract of employment between the Employment Business and the Temporary Worker. The Temporary Worker is engaged as a self-employed worker, although the Employment Business is required to make statutory deductions from the Temporary Worker's remuneration in accordance with clause 4.1.

    5. …
    ASSIGNMENTS
  5. 1 The Employment Business will endeavour to obtain suitable Assignments for the Temporary Worker to work as a ………………………….. . The Temporary Worker shall not be obliged to accept an Assignment offered by the Employment Business.

  6. 2 The Temporary Worker acknowledges that the nature of temporary work means that there may be periods when no suitable work is available and agrees: that the suitability of the work to be offered shall be determined solely by the Employment Business; that the Employment Business shall incur no liability to the Temporary Worker should it fail to offer opportunities to work in the above category or in any other category; and that no contract shall exist between the Temporary Worker and the Employment Business during periods when the Temporary Worker is not working on an Assignment.

    7. …
    REMUNERATION
  7. 1 The Employment Business shall pay to the Temporary Worker remuneration calculated at a minimum hourly rate of £5.05 being the minimum rate of remuneration that the Employment Business reasonably expects to achieve, for all hours worked. The actual rate will be notified on a per Assignment basis, for each hour worked during an Assignment (to the nearest quarter hour) to be paid weekly in arrears, subject to deductions in respect of PAYE pursuant to Sections 44-47 of the Income Tax (Earnings and Pensions) Act 2003 and Class 1 National Insurance Contributions and any other deductions which the Employment Business may be required by law to make.

  8. 2 Subject to any statutory entitlement under the relevant legislation, the Temporary Worker is not entitled to receive payment from the Employment Business or Clients for time not spent on Assignment, whether in respect of holidays, illness or absence for any other reason unless otherwise agreed.

    9. …
    TIME SHEETS
  9. 1 At the end of each week of an Assignment (or at the end of the Assignment where it is for a period of one week or less or is completed before the end of the week) the Temporary Worker shall deliver to the Employment Business a time sheet duly completed to indicate the number of hours worked during the preceding week (or such lesser period) and signed by an authorised representative of the Client.

  10. 2 Subject to clause 7.3 The Employment Business shall pay the Temporary Worker for all hours worked regardless of whether the Employment Business has received payment from the Client for those hours.

  11. 3 Where the Temporary Worker fails to submit a properly authenticated time sheet the Employment Business shall, in a timely fashion, conduct further investigations into the hours claimed by the Temporary Worker and the reasons that the Client has refused to sign a timesheet in respect of those hours. This may delay any payment due to the Temporary Worker. The Employment Business shall make no payment to the Temporary Worker for hours not worked."

  12. The Appellant is also responsible for the payment of holiday pay and sick pay to the Temporary Worker pursuant to the Working Time Regulations of 1998. The Contract also sets out the conduct expected of the Temporary Worker whilst on assignment and that she will accept the direction, supervision and control of the Client at all times and observe the Client's relevant rules and regulations.

  13. When the Appellant supplies a temporary worker to a client, the Appellant also enters into a contract with that Client. The Contract is headed "Terms & Conditions of Business" and the terms relevant to this decision are as follows:

    14. "1. These terms & Conditions are between Early Years Recruitment Service (Eyears herein after) and the employer ("the client").

  14. The agreement between Eyears & the Client shall be deemed to be accepted by and binding on the client as soon as the Client hires or engages an applicant referred and or introduced by Eyears for the position offered or in any position or capacity with in 12 months of such introduction and or referral. An introduction and or referral occur when an applicant is named to a Client, irrespective of whether previously known to the Client.

  15. The Client agree to pay the hourly charges stated at the time of the booking for the temporary worker for all hours worked. Added expenses agreed with the Client or Support staff shall be shown as a separate item.

  16. The Client agrees to sign a timesheet weekly / daily as required certifying the number of hours the Support Staff have worked.

  17. The Client is responsible for the supervision, direction & control of the Support Staff.

  18. All reasonable efforts are made by Eyears to ensure Support Staff has a reasonable standard of skill, reliability & integrity, no liability will be accepted by Eyears for any loss, expense, damage or delay arising from any failure to provide Support Staff for all or part of the request or from negligence, dishonesty, misconduct or lack of skill on behalf of the Support Staff commencing duties.

  19. The client agrees to be responsible for any actions, omissions, and errors; of the Support Staff should they be wilfully negligent or otherwise as though the Support Staff are on the payroll of the Client.

  20. The Support Staff will be covered by the Clients Liability Insurance.

  21. The Client should satisfy themselves that the Support Staff is qualified and able in every respect for the position in which they are employed.

  22. Eyears assumes responsibility for payment of wages. Deductions and payments of all statutory contributions in respect of National Insurance & administration of schedule E Income Tax (PAYE)."

  23. The Appellant charges the clients by reference to a tariff headed "Client Charge Rate". The tariff consists of three separate hourly rates, depending on the degree of qualification of the Temporary Worker and is in four bands, depending on the day of the week and time of day worked. The tariff is displayed on a single sheet which has a number of notes at the foot including:

    • All charge rates are inclusive of pay to the Support Staff
    • All charge rates are inclusive of agency commission
    • A charge of 8.3% is administered in respect of Working Time Directive
    • A charge of 12.8% of pay plus WTD is administered in respect of National Insurance.
  24. The Client is billed weekly, the invoice showing the number of hours worked, the hourly rate, the Working Time Directive payment and the Employers' National Insurance Contribution. There is nothing on the invoice separating the hourly rate in to commission and salary and no indication on the invoice of the Temporary Worker's hourly pay, although this could be calculated from the WTD payment which is worked out on a percentage basis. It was later accepted by Mr Bove, in oral evidence, that the Client would not know what the Appellant paid its Temporary Workers and would not be entitled to set the rate of pay of the Temporary Worker.

  25. In practical terms, therefore, the arrangements are that the Appellant secures assignments for the Temporary Workers which it has on its books. The Temporary Workers are not paid when they are not on assignment and when they are, they are paid by the Appellant at a rate agreed with the Temporary Worker for the number of hours worked less statutory deductions. Whilst in work, the Temporary Worker is under the supervision, direction and control of the Client and abides by the rules and working practices of the Client's institution. The Appellant invoices the Client at an agreed rate for the number of hours worked, such rate to include both the Appellant's commission and the Temporary Worker's salary.

  26. In his oral evidence, Mr Bove maintained that the Appellant operated not as a principal but as agent for the Client. He accepted there was no contract between the Temporary Worker and the Client but maintained that the Temporary Worker was employed by the Client. The Appellant carries out what Mr Bove describes as "minimum checks" to satisfy itself that the Temporary Worker is qualified and the Appellant also carries out its own CRB checks. It was, however, up to the Client to ensure the Temporary Worker met the qualification requirements for the role being offered. The Temporary Workers were only paid as they were by the Appellant because the Appellant as an employment agency was under a statutory obligation to do so. It was statutorily bound to pay the Temporary Worker, even if the Client did not pay the Appellant and was also statutorily bound to cover the Temporary Worker's sick and holiday pay.

    27. Legislation
  27. Mr Greenhall referred us to Section 5 (2) of Value Added Tax Act 1994:

    28. "5 Meaning of supply: alteration by Treasury order

    (1) Schedule 4 shall apply for determining what it is, or is to be treated as, a supply of goods or a supply of services.
    (2) Subject to any provision made by that Schedule and to Treasury orders under subsections (3) to (6) below —
    (a) "supply" in this Act includes all forms of supply, but not anything done otherwise than for a consideration;
    (b) anything which is not a supply of goods but is done for a consideration (including, if done so, the granting, assignment or surrender of any right) is a supply of services."
  28. Mr Puzey referred us to Section 4 of the Act:

    29. "4 Scope of VAT on taxable supplies

    (1) VAT shall be charged on any supply of goods or services made in the United Kingdom, where it is a taxable supply made by a taxable person in the course or furtherance of any business carried on by him.
    (2) A taxable supply is a supply of goods or services made in the United Kingdom other than an exempt supply."
    Submissions
  29. It was Mr Greenhall's contention that the Temporary Workers were employed by the Client and the position of the Appellant was and always had been as agent of the Client. The Appellant supplied staff from its database to accepted Clients. The fact that the Appellant vetted the Temporary Workers first was not indicative that the Appellant employed them but was purely and simply to retain its reputation within the business.

  30. Section 5(2)(a) defines a supply by excluding anything done otherwise than for a consideration. In other words, where there is no consideration, there can be no taxable supply. As far as the Appellant is concerned, the consideration for its supply to the Client is the commission element of the charge to the Client. The commission is the only charge which the Appellant makes to the Client as the salary element is collected as agent and paid out to the Temporary Worker as agent. In the alternative, Mr Greenhall argued that the payroll activity was an agreed activity with the end user Client and was a "Paymaster" operation. He did not expand upon this.

  31. Mr Puzey, referring to Section 4 of the Act, maintained that there was a supply of staff and that this supply, not being exempt or zero-rated, was taxable. Mr Puzey referred to paragraph 3.9 of the Commissioners' Notice 700/34/05:

    32. "3.9 Employment Bureaux / Agencies

    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.

  32. Mr Puzey submitted that the method of operation here fell within (a). Mr Greenhall maintained that (a) was not applicable because the Temporary Workers were not employees of the bureau. Mr Greenhall submitted that the appropriate section to reflect his arrangement was (c) where the Appellant acted for both Client and Temporary Worker but as it made no charge to the Temporary Worker, there was no taxable supply for that element of the arrangement.

  33. Mr Puzey submitted that the Temporary Workers could not be employed by the Client as there was no contract between the Client and the Temporary Workers. He argued that an agency relationship must be open and must disclose to the principal what charges are actually made. In this case, there is one single charge shown on the invoice and that to Mr Puzey demonstrated that the Appellant was not acting as agent for the Client.

    34. Conclusions
  34. The Appellant's case as argued before the Tribunal was that the Temporary Workers were not employed by the Appellant but by the Client and in providing the Temporary Workers and paying them, the Appellant was acting only as agent for the Client. The crux of this case, as argued therefore, and the issue before us, is whether or not the Appellant was acting as principal or as agent for the Client. An accepted definition of an agency relationship is that it is a fiduciary relationship, which exists between two persons, one of whom expressly or impliedly consents that the other should act on his behalf, and the other of whom similarly consents so to act or so act. If the Appellant is agent for the Client, then it must be undertaking some task or role which belongs to the Client but which the Client has asked the Appellant to undertake for it. In this case, Mr Greenhall appears to be arguing that the Client has asked the Appellant, as its agent, to employ, or to pay the Temporary Workers. An analysis of the contracts shows that this cannot possibly be the case. The agreement between the Appellant and the Temporary Worker provides that the Appellant will pay the Temporary Worker during the course of any assignment. There is therefore a primary liability on the Appellant to pay the Temporary Worker. If the Appellant were to default in paying, the Temporary Worker would sue the Appellant, not the Client. The contract between the Appellant and the Client provides that the Appellant will supply a Temporary Worker to the Client at a stipulated hourly charge. The tariff of client charge rates expressly includes within the charge rate the pay to the temporary worker. Nowhere is there placed upon the Client any liability for payment of the Temporary Worker and in the absence of any separate contract between the Client and the Temporary Worker, there is no such liability.

  35. Turning to paragraph 3.9 of the Commissioners' Notice, it appears to us that the arrangement falls fairly and squarely within (a). This provides for the Temporary Worker to be self-employed rather than an employee, which is of course in line with the Appellant's contract with the Temporary Worker. The Temporary Workers are engaged by the Appellant and the Appellant makes a supply of the services of the Temporary Worker to the Client. The consideration for the supply is the quoted hourly rate, not just a proportion of it. The arrangement cannot fall within (b) in relation to Temporary Workers because, as is accepted by both parties, there is no direct contractual relationship between the Temporary Worker and the Client. Equally, (c) is not applicable because there is nothing in the agreement between the Appellant and the Temporary Worker that implies the Appellant is acting as agent for the Temporary Worker. The Appellant does not act under any circumstances as an intermediary.

  36. We reject the Appellant's contentions that the Appellant acts as agent rather than principal. Equally, because there is no liability on the part of the client to pay the Temporary Worker, it cannot be the case that the Appellant is merely acting as Paymaster. The arrangement here is that the Appellant engages the services of the temporary workers which it then supplies to the client for a consideration, namely the agreed hourly rate. The entire hourly rate is the consideration, out of which the Appellant pays the temporary worker in line with its contractual obligation so to do. VAT is thus payable on the entire consideration. The appeal is therefore dismissed. Mr Puzey made no application for costs and we make no order.

    37. LADY MITTING
    CHAIRMAN
    Release Date: 22 May 2007
    MAN/06/0559

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