Adecco UK Ltd and Others v Revenue and Customs Commissioners
| Jurisdiction | England & Wales |
| Judge | Lord Justice Newey,Lord Justice Patten,Lord Justice David Richards |
| Judgment Date | 30 July 2018 |
| Neutral Citation | [2018] EWCA Civ 1794 |
| Court | Court of Appeal (Civil Division) |
| Docket Number | Case No: A3/2017/1441 |
| Date | 30 July 2018 |
[2018] EWCA Civ 1794
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE UPPER TRIBUNAL
(TAX AND CHANCERY CHAMBER)
Mrs Justice Proudman and Judge Greg Sinfield
Royal Courts of Justice
Strand, London, WC2A 2LL
Lord Justice Patten
Lord Justice David Richards
and
Lord Justice Newey
Case No: A3/2017/1441
Miss Valentina Sloane (instructed by Enyo Law) for the Appellants
Miss Eleni Mitrophanous and Miss Laura Prince (instructed by the General Counsel and Solicitor to HM Revenue and Customs) for the Respondents
Hearing dates: 10 & 11 July 2018
Judgment Approved
The appellants (to which I shall refer simply as “Adecco”) are employment bureaux supplying clients with temporary staff (“temps”). This appeal relates to the extent to which the fees that Adecco charges in connection with temps who are not its employees are subject to value added tax (“VAT”). One way in which the question raised can be expressed is: what is it that, for VAT purposes, Adecco supplies to its clients?
Adecco maintains that it does no more than introduce candidates to clients and provide ancillary (in particular, payment) services. It is, Adecco argues, the temps themselves, and not Adecco, who supply their work to the clients. On that basis, Adecco claims that VAT is not payable on the totality of the sums that it receives from clients (which in large part represent payment for the temps' services), but only on the element attributable to the introduction and ancillary services that it supplies itself.
HM Revenue and Customs (“HMRC”), on the other hand, deny that any such distinction falls to be made. According to HMRC, Adecco is obliged to account for VAT on everything that it is paid by a client. The temps' services, HMRC say, are supplied to clients by Adecco.
The First-tier Tribunal (“the FTT”) (Judge Barbara Mosedale) and the Upper Tribunal (“the UT”) (Proudman J and Judge Greg Sinfield) each agreed with HMRC, albeit for somewhat different reasons. Adecco now, however, challenges that conclusion in this Court.
Basic facts
Adecco's business models
As the FTT explained (in paragraph 3 of its decision), Adecco has these three business models:
“(1) Employed temps: it employs persons who it assigns to its clients on a temporary basis. There is an employment contract between Adecco and the employee under which the employee agrees to act exclusively for Adecco and Adecco guarantees to find a minimum number of paid assignments for the employee;
(2) Non-employed temps: these are the subject of this appeal…. They are persons who are on the books of Adecco but are not considered to be employed by that company. Adecco may introduce them to clients looking for a temporary worker to undertake an assignment. The temps are not obliged to accept any assignment offered and Adecco is not obliged to find them an assignment. Nevertheless, Adecco undertakes with these persons to pay them for the work they do for Adecco's clients and is classed as their ‘employer’ for various regulatory matters, including the working time regulations and payment of PAYE/NIC. Adecco's payment by its clients will be periodic and normally calculated as an amount representing the payment Adecco must make to and on behalf of the temp plus a commission element.
(3) Contract workers: these are self employed workers which Adecco may introduce to a client, and with whom the client will enter into a separate contract direct with the contract worker to provide the work required. They are not Adecco's employees in any sense, and Adecco does not undertake to pay them. Adecco's charge to its clients will typically be a one-off fee (albeit normally calculated by reference to the contract worker's rate of pay and the length of the assignment).”
There is no dispute as to the correct VAT position as regards categories (1) and (3). So far as the former (employed temps) are concerned, the parties agree that Adecco makes supplies of staff and must account for VAT on all its charges. With respect to category (3) (contract workers), it is common ground that Adecco supplies just introductory services and is liable for VAT only on the fees for such introductions. The contract workers' services are supplied to clients by them, not Adecco.
The present proceedings concern category 2 (non-employed temps). In that connection, the parties agreed that the FTT could take sample contracts used by one of the appellants, Badenoch & Clark, as representative of those adopted by all the appellants. One such contract was made between Badenoch & Clark and a temp, the other between Badenoch & Clark and a client. There was no contractual relationship at all between temps and clients.
The sample contracts
Taking first the contract between Badenoch & Clark (to which I shall in future refer as “Adecco”) and a temp, the preamble to this stated that the temp was “engaged by us to undertake an Assignment for a Client”. “Assignment” was defined as “the services to be provided by you to the Client in the form and for the term set out in the Confirmation Letter”, “Client” as “the person, firm or corporate body … requiring your Services through [Adecco] as further defined in the Confirmation Letter”. “Confirmation Letter” meant “the letter confirming the Assignment and setting out further terms of the Assignment”, while “you or your” referred to “the temporary worker to be supplied through [Adecco] on Assignment with the Client …”.
Clause 1 of the contract set out what the temp agreed to do and included the following:
“1.1 in your capacity as a PAYE worker to perform each Assignment professionally, promptly and efficiently and in good faith using your own skill and expertise and with due care and to the best standards;
…
1.3 to be subject to the legitimate instructions, monitoring, direction, supervision, management, control of the Client … to the extent required for the proper performance of the Assignment and to abide by the rules and regulations of the Client … and the terms of the Assignment …
1.4 to keep accurate weekly written records on [Adecco] standard Timesheets (or as otherwise directed) of time spent performing the Assignment for the Client … and at the end of each week to have such records (where applicable) agreed and signed by a person authorised to do so by the Client … and to submit the signed records to [Adecco];
1.5 to comply with any Special Terms set out in the Confirmation Letter or other relevant document and the procedural rules we may provide to you from time to time relating to processing of contractual matters for temporary workers;
1.6 to fully indemnify us against any loss, claim or damages (including costs) arising from any breach of this Agreement or any negligent or unlawful act or omission or wilful misconduct by you …; and
1.7 to inform us immediately if the Client … fails to provide any facilities to enable you to perform the Assignment, or refuses or fails to sign a Timesheet as required under clause 1.4 or offers you any work, whether temporary or permanent, other than under an Assignment through us, or if for any reason you do not consider the work suitable for you.”
Clause 3 specified what the temp must not do and included this:
“3.4 during an Assignment other than for sickness take any period of absence or leave without our prior agreement and in the case of leave entitlement (please also see clause 4) without having submitted a leave request form in accordance with [Adecco] procedures.”
Clause 4 said this about absence and holidays:
“4 You acknowledge and agree that:
4.1 you are not entitled to any payment during any period of absence due to any cause except to the extent required by law;
4.2 because unauthorised absence or absence due to sickness may result in a breach of obligations which we owe to the Client during an Assignment you shall notify us as soon as possible and by 9 a.m. on each day of any absence and give the best indication you are able to of any likely period of absence and the reason for the absence;
4.3 during periods when you are not engaged on an Assignment your engagement with us is temporarily suspended and … you may work for any other person or company and such periods will not be taken into account in calculating statutory leave entitlement;
4.4 you shall be entitled to 24 days paid leave …;
4.5 any unauthorised absence or absence due to sickness not notified to us under clause 4.2 shall be deemed to be annual leave taken by you and will be recorded by us as such;
4.6 you may not give notice to take annual leave within the first 14 days from the start date of an Assignment. Thereafter you shall give us and the Client no less than 14 days written notice of any intention to take annual leave …”
Clause 5, dealing with Adecco's obligations, stated:
“We may from time to time find work for you, but do not guarantee that any such work will be found or provided to you and we do not accept any liability if we do not locate any such work for you; when we have found work we will send to you a Confirmation Letter. Further we accept no liability if the work is not suitable, and we accept no liability for the actions, torts or breach of contract or obligation by the Client …”
In clause 6, Adecco agreed, subject to clause 4, that it would pay the temp at the rate set out in the Confirmation Letter for work performed satisfactorily during an Assignment. It was specifically stated that:
...“Payment shall be made whether or not the Client has paid [Adecco]”.
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