According to a report on contractoruk.com, discussions between Treasury officials and recruitment representatives last week resulted in an unlikely withdrawal of the proposal by Chancellor Alistair Darling.

Critics of the move say the dropping of such a concession will cost end users an estimated £400m.

The concession currently allows agencies supplying staff to employers who are unable to recover VAT to exclude VAT from the wages element of their costs.

Under the proposal, agencies must charge VAT on all supplies of temporary staff. The move is scheduled to come into effect from April 2009.

Kevin Green, chief executive at the Recruitment and Employment Confederation, is urging the government to reconsider removing the VAT staff hire concession.

'Removing the concession will add £400m to employer costs at a time when key sectors like charity, financial and health-care can least afford it,' he said.

Further Reading:

Insurers call on Treasury over temp VAT

Employers prepare for temporary worker tax hike