When making recruitment placements within the UK, whether permanent, temporary, or contract, a UK-based recruitment agency that is registered for VAT will charge VAT on the net invoice value to its UK client (except for placements covered by the Nursing Agency Concession).
However, when a UK recruitment agency makes a placement (permanent, temporary, or contract) for a client based outside of the UK, VAT is not applied to the invoice.
In these cases, the overseas client is subject to reverse charge VAT. The agency should ensure that the client’s VAT number is included on the invoice to demonstrate that the reverse charge mechanism has been applied. The agency will record this as an international placement in its books, and the VAT return will show that no VAT has been charged under the reverse charge rules.
One important point to note is that if an agency supplies temporary or contract workers to an overseas client but the worker is engaged through a UK-based umbrella company or limited company, the worker may still charge VAT on their invoice. This is because the services are deemed to be provided between two UK businesses, depending on the contract terms.
This situation can create cashflow challenges for the agency, as it will not be charging VAT to the client but will still need to pay VAT to the candidate. In such cases, it may be beneficial for the agency to move to monthly VAT returns in order to reclaim the VAT paid to the candidate more quickly from HMRC. At
MAYACHI, we provide advice and support to recruitment agencies making international placements, ensuring they understand the VAT implications that may arise. We also have established relationships with invoice finance companies and back-office providers who can help with the funding and administration required for international placements
