Adecco UK Ltd & Ors v The Commissioners for HMRC

For VAT purposes, the contractual arrangements are the starting point for identifying a supply and its recipient. They normally reflect economic and commercial reality unless they are artificial or otherwise fail to represent the transaction.

An employment bureau supplies temporary workers’ services, rather than merely introduction and payment services, where workers perform assignments through the bureau’s contracts, the bureau pays them on its own behalf, and it confers control on clients. Pre-existing control over a worker is unnecessary. The bureau must account for VAT on its entire charge, including the amount attributable to the worker’s remuneration.

Adecco supplied clients with non-employed temporary workers. There was no contract between a worker and a client. Adecco contracted separately with each, paid the workers whether or not clients paid it, and charged clients a single hourly sum.

After Reed Employment Ltd v Revenue and Customs Commissioners [2011] UKFTT 200 (TC), Adecco sought repayment of VAT previously accounted for on the remuneration element of its charges. The First-tier Tribunal rejected the claims. The Upper Tribunal dismissed Adecco’s appeal in [2017] UKUT 113 (TCC).

The issue was whether Adecco supplied the workers’ services to clients and therefore owed VAT on its full charges, or supplied only introductory and ancillary services.

1. Appeal dismissed. The Upper Tribunal correctly concluded that Adecco supplied the non-employed temporary workers’ services to its clients. VAT was payable on the totality of the amounts received from clients.

2. The contractual position is the most useful starting point when identifying the supplier, recipient and nature of a VAT supply. It must then be tested against the economic and commercial reality. The contracts normally reflect that reality unless they are artificial or otherwise vitiated. Here, none of the contractual provisions was artificial, a sham, liable to rectification or otherwise vitiated.

3. The workers performed assignments through the two sets of contracts made by Adecco. There was no contract between workers and clients. Although clients directed the work, the workers had agreed with Adecco to submit to that control. Adecco could therefore confer control on its clients through its own contracts with the workers.

4. Adecco remained materially involved after an introduction. It paid workers on its own behalf and regardless of whether clients paid it. It also bore limited commercial risk and possessed termination and suspension rights. Workers owed obligations to Adecco concerning absence, while clients were to approach Adecco if performance was unsatisfactory. Adecco charged one hourly sum rather than separating its commission from workers’ remuneration.

5. A bureau need not possess pre-existing control over a worker before it can supply the worker’s services. Back-to-back contractual arrangements can enable one person to receive services and supply them onward. The contrary analysis in Reed Employment Ltd v Revenue and Customs Commissioners [2011] UKFTT 200 (TC) was wrong.

6. The arrangements differed from cases in which a payer merely discharged a financial obligation by providing third-party consideration. Adecco did not simply meet the cost of services supplied independently to another person. Nor could its payments be treated as reimbursement of expenditure incurred in clients’ names and on their behalf under article 79(c) of the Principal VAT Directive.

1. Court of Appeal (Civil Division): The appeal was dismissed unanimously. The court affirmed the Upper Tribunal’s conclusion that Adecco supplied the temporary workers’ services and owed VAT on its full charges: [2018] EWCA Civ 1794.
2. Upper Tribunal (Tax and Chancery Chamber): The tribunal dismissed Adecco’s appeal, holding that it supplied the non-employed temporary workers to clients in return for the total fees paid: [2017] UKUT 113 (TCC).
3. First-tier Tribunal: The tribunal refused Adecco’s repayment claims, holding that it was liable to account for VAT on the full fees charged to clients. No citation is stated in the judgment.