VAT – Supply of Personnel

Introduction

This case deals with the application of an extra-statutory concession in the area of supply of personnel in the financial services area.

The Facts

This case dealt with a hearing of two applications for judicial review to quash a decision of HMRC to assess Accenture Services Ltd (“Accenture”) for output VAT payable in respect of a supply of personnel to Barclays Bank Plc (“Barclays”). The applications were brought by Accenture and Barclays.

The supply of personnel by Accenture to Barclays commenced in June 2004, and was made on the terms of a Secondment Agreement dated 11 June 2004 between Accenture and Barclays. The personnel supplied by Accenture to Barclays were each employed by Accenture under an employment contract in standard form. The supply was made in order to enable Accenture in the UK to carry out its obligations under a Master Service Agreement with Barclays, under which Barclays outsourced to Accenture-UK the management and development of what had until then been Barclays’ information technology department.

Accenture contended that the services it provided to Barclays fell within the terms of an extra-statutory concession used by HMRC. HMRC contended that the extra-statutory concession was not applicable.

Under the agreement, Accenture seconded to Barclays staff employed by Accenture on terms that Barclays paid those staff directly sums equal to the remuneration owed to them by Accenture under their respective employment contracts and paid directly to relevant third parties any taxes, national insurance and pension contributions attributable to their employment. All these payments constituted consideration payable in respect of the supply of personnel by Accenture to Barclays. That supply of personnel took place within the UK.

Accenture – UK was a firm of management consultants. Accenture was a wholly owned subsidiary of Accenture- UK. Accenture's primary activity is the supply of staff to Accenture – UK and companies associated with it. Accenture also supplied staff to clients of Accenture- UK, such as Barclays. Around 1,400 staff working on Barclays’ IT function were transferred to Accenture – UK, and then by arrangement between Accenture – UK and Accenture were transferred to Accenture. They ended up as employees of Accenture. Accenture then seconded these employees back to Barclays, to work in the same Barclays offices in which they had worked previously.

Accenture invited HMRC to decide that the secondment of Accenture employees to Barclays, on terms that Barclays paid their salaries direct to them and other related costs such as tax and national insurance direct to the relevant authorities, fell within the concession and hence should not be treated as a chargeable supply of services for the purposes of VAT. HMRC decided that Accenture's supply of staff to Barclays did not fall within the Concession, with the result that Accenture would be liable to account for VAT chargeable in respect of the sums paid by Barclays to those staff and to others in respect of them. The basis for the HMRC decision was that the supply was a supply of services and not a supply of staff.

Accenture challenged this decision by bringing judicial review proceedings in the High Court.

The Issue

Whether the supply of personnel by Accenture to Barclays fell within the terms of the extra-statutory concession.

The Decision

The High Court dismissed the claim for judicial review.

It was common ground that, but for application of the extra-statutory concession, VAT would be chargeable on the consideration payable in respect of the supply of personnel by Accenture to Barclays (i.e. by reference to the amount of remuneration, tax, national insurance and pension contributions payable in relation to the Accenture employees supplied to Barclays).

Since the 1970s HMRC operated an extra-statutory concession allowing a business which employed staff to second those staff to a client's business without having to charge and account for VAT in respect of the salary costs of those staff, in circumstances where the client paid relevant salary direct to the staff concerned and where, in respect of the tax, national insurance and pension costs in relation to those staff, the client paid the necessary amounts direct to the relevant authorities or bodies. If the supplying business itself paid the remuneration, tax, national insurance and pension contributions in relation to its employees, and then charged the client a sum to cover those amounts and any profit element, this would fall outside the concession and the supplier would have to charge and account for VAT in respect of the whole sum.

The original staff concession was very wide, and it was found that in practice it gave rise to scope for avoidance of VAT which HMRC considered ought properly to be recovered. On this basis the concession was reformulated in 1997. One such change was the differentiation between supply of staff and supply of service – “If your company supplies services, such as construction services, to another person but your staff continue to operate under your own direction, this is not a supply of staff, but is a supply of those services.” The re-formulated concession was brought to an end with effect from 31 March 2009, following consultation and review by HMRC.

The determining factor on whether the concession applied was that the staff were not contractually employed by the recipient company, but predominant control of the staff was given up by the supplying company under an agreement with the recipient company. It was clear from the agreements that employees who were seconded to Barclays remained under the control of Accenture and were seconded to Barclays for a specific purpose only. Hence the concession did not apply.

The following is an interesting observation on the case in the general area of extra-statutory concessions-it was noted that the concession was an extra-statutory policy of HMRC which was specifically intended to depart from the usual application of the general law of VAT. “Subject to the limits of rationality”, HMRC were entitled to formulate their policy as expressed in the concession in any way they saw fit. It was open to HMRC to state their policy by reference to a definition of supply of staff which they wished to use, and that was what they did.

The judgment is available online at http://www.bailii.org/ew/cases/EWHC/Admin/2009/857.html.