In a further development of the VAT treatment of supplies of agency staff, HMRC have made available a draft business brief which aims to clarify their policy on the VAT treatment of supplies of health professionals, nursing auxiliaries and care assistants by employment agencies.

HMRC states that where an agency supplies registered health professionals such as doctors, dentists, physiotherapists (including locum staff) as a principal to a third party, e.g. an NHS Trust, it is making a taxable supply of staff and not an exempt supply of healthcare.   This is on the basis that the health professional is working under the control and guidance of the third party and it is therefore the third party which is responsible for providing healthcare to the final patient, rather than the business supplying the staff which has no such responsibility.

The brief goes on to state that a taxable supply of staff is made even where the agency is responsible for ensuring that the workers it provides are properly trained and qualified when they work under the control of the third party.

A taxable supply of staff is also made where self-employed staff (such as doctors) are supplied to a third party, where there may be no other staff with medical knowledge.  This is because, even if the third party cannot supervise doctors’ medical proficiency, it nevertheless controls where and how the doctors work within its institution and is ultimately responsible for providing the healthcare.

HMRC states that exceptionally, if an agency uses its staff to make a supply of healthcare to the final patient, it is providing healthcare which is therefore exempt from VAT, (although this is unlikely to happen in practice as employment agencies are generally in the business of providing staff to third parties rather than healthcare to patients).

Concession for Supplies of Nurses and Nursing Auxiliaries

By concession, agencies supplying nurses may still exempt supplies of nursing staff and nursing auxiliaries supplied as a principal to a third party provided the business is registered with one of the relevant statutory care institutions.   This concession also extends to supplies of nursing auxiliaries provided they perform some form of medical care.

Is HMRC’s Policy Right?

The current VAT legislation states generally that VAT exemption for healthcare services is based upon the professional qualifications of the individual ‘person’ engaged in providing the service.  This covers services of registered medical practitioners including doctors and nurses, midwives, etc under the same umbrella.

Furthermore, the legislation includes supplies of services made by a person who is not a registered health professional, but where the services are wholly performed or directly supervised by a person who is registered.

This would therefore suggest to us that an employment business providing medical practitioners should still be able to exempt its supplies, as it is the person supplying the services and the services are wholly performed by registered persons (i.e. the registered doctors, nurses, etc which are being supplied).

To state that this is a taxable supply of staff seems to go against the spirit of the legislation as VAT should only be levied on goods/services not covered by the exempt/zero/reduced rate schedules.

The suggested nursing agencies ‘concession’ could lead to an illogical situation where the services of an unqualified nursing auxiliary could be treated as an exempt supply of healthcare, but the medical services of a qualified doctor are taxed as a supply of staff.

How This Affects the NHS

Bearing in mind most of these types of supplies are made to the NHS, the concession for nurses is irrelevant as the NHS is currently allowed to recover VAT on nursing agency services under the contracted-out services rules.  The NHS is not however permitted to recover VAT on doctors/locums.

HMRC have asked for comments on the draft legislation and we have made our points known to them, however as in previous consultations, we expect HMRC to issue the brief soon with no changes.

This will therefore have the effect of further increasing the level of irrecoverable VAT on agency staff, as some of the agencies which currently still do not charge VAT will presumably be forced to adopt this clarified VAT treatment.

CRS VAT Consulting is a firm of chartered tax advisers specialising in pro-active and innovative VAT solutions.  Since 2002 we have grown to become a leading provider of VAT services to the NHS.  We have achieved this by consistently identifying increased levels of VAT recovery and providing flexible services tailored to the specific needs of our clients.

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