We have been made aware of a number of instances whereby the Nursing Agencies VAT concession is being incorrectly applied, with some recruitment agencies (and the umbrellas they work with) have been getting this wrong for a number of years. However, HMRC’s VAT team have confirmed that the concession does not apply to umbrella firms as they are not involved in the supply of nurses – rather this supply function is carried out by the recruitment agency and not the umbrella.
The Nursing Agencies VAT concession enables recruitment agencies to not charge VAT when supplying a registered nurse, an unregistered nursing auxiliary who is supervised by a registered nurse, or an unregistered nursing auxiliary whose services are supplied to a hospital, hospice or care home and form part of the care given to the patient.
HMRC’s view is very clear that if there is an intermediary (e.g. umbrella firm) between the recruitment agency and the hospital/hospice/care home receiving the nursing supply, then the concession does not apply. In other words, the Nursing Agencies VAT Concession can only apply where there is direct supply of the worker to the hospital/hospice/care home. This is the case even if the agency itself benefits from the concession.
This means that the umbrella firm must charge VAT when invoicing the recruitment agency for the services of it’s nursing workers. The agency must pay the VAT that is charged by the umbrella, even if the agency doesn’t have to charge onward VAT to the hospital/hospice/care home. The agency can later reclaim the VAT paid, however it creates a significant cashflow issue due to incurring a cost which is not offset by corresponding income.
The Nursing Agencies VAT issue is one reason that Joint Employment has now evolved as a mechanism to engage workers by sharing employment responsibilities between the umbrella and the recruitment agency. In this scenario, the umbrella could be seen as supplying the nursing worker directly to the hospital/hospice/care home client, and therefore could benefit from the concession. However, the joint employment mechanism of engaging workers is still fairly new, and should not be undertaken purely as a means to benefit from the VAT concession. For more information about Joint Employment, see our article
The confusion surrounding the Nursing Agencies VAT Concession is not new, and is exacerbated by some umbrellas deliberately not charging VAT on their invoices to recruitment agencies, perhaps a genuine error, or perhaps in the hopeful belief that HMRC will not catch up with them. Any agencies considering working with such intermediaries should tread very carefully as you may be at risk of a costly HMRC investigation. Ultimately, if it can be shown that you knew (or should have known) that you entered into transactions which were connected with fraudulent evasion of VAT, you will lose the right to recover the tax paid on these transactions. In short, you could end up with a very significant VAT bill.
