Currently employers are able to reclaim the VAT on wages of temporary staff, but from April 2009 this will not be possible.
The REC claims that if the Government removes the VAT concession thousands of temporary job opportunities will be lost as employers struggle to pay the tax.
Kevin Green, REC chief executive, said: "The net result of having to add VAT to the overall cost of taking on temporary and contract workers is likely to be less flexibility, higher costs for UK businesses and fewer jobs available."
The REC is meeting with HMRC later in the week to discuss possible solutions.
Temp jobs will suffer if employer tax concession is removed
The Recruitment and Employment Confederation (REC) has urged HM Revenue and Customs (HMRC) not to withdraw the VAT Staff Hire Concession next year, as it will cost employers 400 million to recruit temporary staff.
