Customs & Excise has decided that temporary agency staff are contracted to the bureaux supplying them and not with the client hiring them. The increased VAT burden will hit charities who hire care staff, office workers and other personnel through agencies hardest.
'There is going to be a problem,' said Deloitte & Touche VAT partner John Kennedy. 'Before they were only paying VAT on the agency commission but now they will have to pay VAT on the entire salary.'
Additionally, carers will be subject to national minimum wage legislation and the working time directive which would effectively double the cost of care for clients who pay around £40 per day.
'The move could signal a switch from care at home to residential care for both the elderly and disabled, in complete contradiction of recommendations made by Royal Commission for Long Term Care in March,' warned accountant John Ruffell, general manager of Consultus Services Agency which provides self-employed care workers.
The news comes soon after the disappointing conclusion of the government's charity taxation review which reneged on promises to reduce the VAT burden on the charity sector.
'It is unfortunate that while those decisions have been under way we have a change which is going to create an additional cost,' Kennedy added.
The government has recently sought to promote closer working with charities who also provide services to elderly and disabled people. Critics have highlighted the attraction of having charities undertake this work. Without the £12bn voluntary sector's involvement, the government would be forced to fund carers.
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