We are frequently asked to provide definitive advice on the recoverability of VAT on staff agency fees and consultancy services.  We have therefore reproduced the current rules below, together with some additional guidance regarding the differences between staff and consultancy services.

Nursing and Admin Staff – Headings 41 and 69

At present, NHS bodies are able to recover VAT on supplies of nursing staff (including qualified and non-qualified nurses/healthcare assistants) under contracted-out services (“COS”) heading 41 and admin/clerical grade staff (including receptionists, secretaries, data inputters, accounts clerks, etc) under COS heading 69.

VAT cannot be recovered under any COS heading on any other staff provided by an agency, such as medical staff (doctors/locums/consultants, social workers, physiotherapists, laboratory or theatre technicians, radiographers, etc.) and other support staff, (cooks, cleaners, laundry workers, drivers, porters, etc).

The supply of services such as catering, laboratory, laundry, library services, collection & delivery, passenger transport, pest control, security, etc. continue to be eligible under the various headings as contracted-out services in their own right, but supplies of agency staff carrying out these functions are not eligible for recovery.

Consultancy Services – Heading 52

Consultancy and advisory services are eligible for VAT recovery by NHS bodies under COS heading 52. This currently includes the professional fees of architects and structural engineers, quantity surveyors, etc associated with building schemes.  Also included are the services of solicitors, computer consultancy work, including software development and other departmental advisory work, legal advice and internal audit.

However, supplies of ‘consultants’ by an employment agency (typically but not always) to fill a post, (e.g. interim financial controller, director of IT, etc), where the consultant comes under the ‘management and direction’ of the NHS body are not eligible for recovery as these are deemed to be supplies of senior staff.

These rules can sometimes lead to confusion because many staffing agencies and consultancy firms alike use interchangeable terms like ‘interim’ or ‘consultant’ in their contracts and invoicing procedures.

Areas at risk include:

  • Where a consultant assignment is for the duration of a ‘project’ and works for an in-house project team. This can sometimes seem like consultancy due to the nature of the project (e.g. IT development), however may really be staff augmentation and therefore not eligible.
  • Where a consulting firm’s contract is based on ‘time spent’ with vague or no deliverables and their invoice is accompanied by a timesheet (instead of for instance a fixed contract with specific deliverables and acceptance criteria). These can sometimes be confused as supplies of staff, where in reality the consulting firm has been appointed to provide advice which is eligible for VAT recovery.  The presence of a timesheet is not therefore a deciding factor.
  • Where a consulting firm’s range of services include both advice and staff augmentation but their invoicing does not clearly differentiate between the two. Again, each individual supply must be considered separately to determine the eligibility.

Although not exhaustive, we recommend the following checklist is used as a rule of thumb to determine eligibility for VAT recovery on consultancy services:

If a consultant:

  1. works through a staffing agency or other service provider
  2. is on an assignment at the NHS body to fill a particular post or “augment” staffing levels
  3. comes under the day-to-day direction and management of the NHS body
 If a consultant:

  1. works through a consulting firm or other service provider (not usually a staff agency)
  2. is assigned to deliver advice or consultancy and the contract states specific “deliverables” typically within a given time frame
  3. the consultant does not come under the day-to-day management of the NHS body, but works under their own direction or under a line manager of the consultancy firm
This is typically a supply of staff and therefore not eligible for VAT recovery. This will generally be a supply of professional services and provided the usual COS conditions are met, will be eligible for VAT recovery.

This advice outlines the general rules to apply, so please contact us for specific advice if you are still unsure.