The Nursing Agencies VAT Concession

For some time now there has been uncertainty in some parts of the recruitment sector as to whether the valuable VAT concession which exempts employment agencies from charging VAT for supplying certain nursing and nursing auxiliary staff to an end user can be accessed by an umbrella company.

A close inspection of the relevant VAT Notice 701/57 – Health professionals and pharmaceutical products, contains what is called an ‘informal extra-statutory concession’ and which ‘may exempt the supply of nursing staff and nursing auxiliaries supplied as a principal to a third party’.

The whole purpose of an ‘extra statutory concession’ is to permit HMRC to allow reliefs in specific sets of circumstances to individuals or businesses falling within certain relevant conditions. They’re authorised when a strict application of the law would create a disadvantage or the effect of the legislation would not be the one intended.

Umbrellas are not included

HMRC are known to guard these concessions closely. They do not permit them to be extended or expanded to fit situations for which they were never intended.

So the Nursing Agencies VAT concession is interpreted by HMRC as being there to cover the supply of staff by nursing or employment bureaux to the end user.

They take the view that if a third party intermediary is interposed between the employment agency and the end user, it is one stage removed from that end user and cannot benefit from the concession. In other words, the fact that an umbrella company does not directly supply workers (unlike an employment agency) means that it’s excluded. This is the case even if the agency itself benefits from the concession.

Clearly then employment agencies must ensure where they deal with any third party payment intermediary that it is clearly understood that the Nursing Agencies VAT Concession does not apply throughout the supply chain. An umbrella company supplying nursing staff to an employment agency must charge VAT, even if the agency itself does not need to charge VAT to the end user.

Agencies should beware of potential umbrella providers who offer their service without charging VAT – they could be at risk in an HMRC challenge and be faced with becoming liable for the VAT which should have been charged.