In a letter to the Recruitment and Employment Confederation (REC), Treasury minister Danny Alexander has warned NHS Trusts against using artificial arrangements designed to avoid paying VAT on locum staff charges.

This follows news reports about schemes used by a number of NHS Trusts, which involve the hire of locum doctors and other staff on short-term employment contracts that fall outside the scope of VAT.

According to the REC, Mr. Alexander confirmed that such contracts would only escape a VAT charge if the evidence proved that a medical professional was being directly employed by an NHS Trust, with the Trust taking on the liabilities of an employer. This evidence included the length of time that a person is engaged for, and he explained by way of example that

‘HMRC would not consider a placement for a period of one shift to be consistent with a contract of employment but, instead, would see that as indicating the agency is making a supply of staff liable to VAT.’

We understand that HMRC is undertaking an investigation into this issue and that it anticipates briefing members of Parliament’s Public Accounts Committee in the next few weeks.

If your Trust is one of those that use these schemes, or if you would like further information about the VAT rules which apply to supplies of staff, please do not hesitate to contact us.