Readers’ forum: Labour or services?

I act for a company that trades as a labour agency providing workers to building contractors and property developers. The company charges an hourly rate for the time of each worker and has always charged 20% VAT on its services – in other words as a supply of staff. The workers are employed by my client on a PAYE basis.

The contractor on one particular contract has changed the usual terms of engagement and said that my client will be held responsible for any defects and unsatisfactory works carried out by the workers – my client has taken out a specialist insurance policy to cover this risk. The contractor has also said that 70% of the site relates to new residential buildings and 30% to retail units so my client should only charge VAT on 30% of the fee.

I have concerns about this suggestion – my client has...