Determining the VAT liability of supplies of staff is far from straightforward and we are frequently asked by our clients whether VAT should be charged. The relevant legislation is not particularly clear on the point and with the advent of penalties for the NHS, clarifying the issue is a means of taking reasonable care.
The following step-by-step guidance should cover most eventualities.
The basic starting point is that a supply of staff which come under the ‘direction and control’ of the recipient is taxable at the standard-rate. This means that if you make a member of staff available to work elsewhere, and the staff member is given work, instructions, etc by the recipient, this is a supply of staff. Taken from HMRC’s Public Notice (700/34), there are a few exceptions to this rule, where supplies of staff are not always made in the course or furtherance of business and therefore may be outside the scope of VAT (“OS”), i.e. completely non VATable.
- secondments between and by government departments (technically, includes the NHS) which require specialist knowledge that cannot be obtained from the private sector;
- secondments between National Health bodies; and
- some secondments between local authorities and by local authorities where they have a statutory obligation or monopoly
- supplies of staff to any person who belongs outside the EU, or to a business belonging in another member state of the EU
In addition, the following are also either outside the scope or exempt from VAT:
- supplies of nursing staff using the nursing agency concession (exempt)
- recharges of staff salaries under Section 75 NHS Act 2006 (pooled budget) arrangements (OS)
- supplies of certain staff to universities under a joint working memorandum (OS)
- supplies of staff to the prison service under similar memorandum arrangements (OS)
Recharges to Charities
Another area of confusion is recharges of staff costs to charities where the charity is funding the costs as part of its charitable aims. In most instances, the staff remain under the direction and control of the NHS body and therefore the recharge is simply a means of funding their salary by way of a grant or donation. These recharges are also generally outside the scope of VAT.
Recharges of Staff to Local Authorities
With regards to supplies by and between NHS bodies and local authorities, it is worth considering the provisions of Part 3 of the National Health Service Act 2006 on this subject. This includes Section 74 to Section 82 of the Act (which also includes the pooled budget provisions referred to above under Section 75). These provisions remain largely unchanged by the 2012 Health & Welfare Act.
Where an NHS body supplies services of staff to a local authority under the terms of Section 80 of the NHS Act 2006 to enable the local authority to carry out its statutory functions, this is a statutory obligation.
It should therefore be permissible for supplies of staff by NHS bodies to local authorities for statutory purposes to be outside the scope of VAT. Where staff are supplied to local authorities for purposes other than the performance of their statutory functions, then these supplies will be taxable.
Joint Contracts of Employment
In cases of joint employment, there is no supply for VAT purposes between the joint employers.
Staff are regarded as jointly employed if their contracts of employment or letter of appointment makes it clear that they have more than one employer.
The contract must specify who the actual employers are.
Staff are not jointly employed if their contract is with a single employer even if it requires them to work for other organisations. As such, staff employed by a single employer which are supplied to work at another organisation are subject to VAT, subject to the basic rules outlined above.
Supplies of Services
Anything else which is not a supply of staff (i.e. where the direction and control condition is not met) is likely to be a supply of services and the VAT liability will depend upon the nature of the service being provided. This could therefore be taxable or exempt (i.e., if a supply of healthcare).