Fire and Rescue Services Staff Secondments to the FBU: HMRC changes VAT policy

Fire and Rescue Services Staff Secondments to the FBU: HMRC changes VAT policy

The supply of staff is a standard-rated business activity in all but a few circumstances. There has been an ongoing dispute about FRS secondments to the FBU, with HMRC insisting on them being standard rated business supplies.

HMRC has now changed its policy, and the secondments can be treated as outside the scope of VAT.

Background
In a letter to the FBU in 2001, HMRC agreed that the secondment of a serving fire officer to the Fire Brigade Union (“the FBU”) was a non-business supply.

There is no legal compulsion for an FRS to release staff to a union, but HMRC accepted that in the specific case of the FBU, the supply was outside the scope of VAT. This was because there is a requirement that the FBU representative must be a current operational officer with knowledge of current firefighting practices and procedures. As such, the representative could not be secured from elsewhere.

However, last year, HMRC assessed an FRS for four years of underdeclared VAT, despite the FRS receiving further confirmation of non-business treatment in 2017. HMRC said that the 2017 decision was incorrect, and VAT should have been accounted for on the secondments.

PSTAX worked with the FRS to submit a request for an independent review of the decision. The basis of the submission was that this was clearly a change in HMRC policy, and if it now believed that the supply was taxable, HMRC should apply the new treatment only prospectively.

Following further discussions, HMRC has withdrawn its challenge and agrees that the supply can be non-business.

In explaining its decision, HMRC provided a full list of issues, but in summary, the reasons for the change were that the secondment was not an economic activity.

HMRC’s rationale for this is that the authority “continue to consistently recover less than the full cost to them of seconding employees to the Fire Brigades Union “. Therefore, the FRS is not acting as a taxable person when seconding officers to the FBU; it is not carrying out an economic activity. The supply is outside the scope of VAT.

This is not the same as non-business activities under section 41A, where a public body is acting under a special legal regime, and non-business treatment would not cause significant distortion of competition. However, it achieves the same result.

If you second officers to the FBU, PSTAX will be pleased to help review the arrangements to ensure the correct VAT treatment is applied.

If you have any questions, please contact:

Nick Burrows: nick.burrows@pstax.co.uk | 07805 449651