When a UK VAT registered recruitment agency makes a permanent or contract placement to a UK client, they will charge VAT on the invoices they raise. However, when a UK VAT registered recruitment agency makes a permanent or contract placement to a client outside of the UK, VAT is often not charged.
The UK exited the EU VAT regime on 31 December 2020, and as such, most of the changes on VAT affected goods movements – including extra VAT registrations and import VAT to manage. There are limited changes to VAT on services – except certain cross-border B2C services to EU and UK consumers, which also should not affect recruitment agencies as these services are rarely directly to consumers.
If your business customer is outside of the UK, then the ‘General Rule’ still applies as the service is considered to be taking place outside of the UK. This means it is outside of the scope of UK VAT, so zero-rated. You must obtain evidence of your customer being outside of the UK, typically a valid VAT or tax ID number in their country of residence. But other proof is satisfactory.
You may find yourself in a situation where you are not charging the client for the recruitment services you are providing, but the candidate is working in the UK via a UK limited/umbrella company, then they may be charging you VAT. This could affect your cash flow as you are paying VAT but not charging VAT to the client and due a VAT refund, so you may want to look at moving to monthly VAT returns.
It is always best to understand how international placements may affect your cash flow and VAT position by speaking with your accountant.
TBOS provides a comprehensive back office and accounting solution to over 120 recruitment agencies, including managing their VAT records and schemes daily.
Please contact our office if you would like further information on how we can help your agency.