VAT Liability on Agency Nurses

Is your cashflow being affected as a result of NHS Trusts demanding that you don’t apply VAT to invoices for Nursing staff?

This is not a new problem.

Since the introduction of IR35 legislation in the public sector, most nurses are now engaged through an Umbrella company. Umbrella companies must apply VAT to their entire invoice.

What is the Nursing Agencies Concession & why does it matter?

The Nursing Agencies Concession was brought in to reduce the cost of supplying medical staff. It exempts agencies from charging VAT on to the end-hirer or NHS Trust, where the contractors supplied are registered nurses, unregistered nurses working under the supervision of registered nurses or nursing auxiliaries (where services form part of patient medical care).

For more information regarding the Nursing Agencies Concession and its importance, please visit this link.

Does it apply to Umbrella companies?

No. This does not apply to Umbrella companies supplying services of staff to a recruitment agency.

It only applies to the direct provision of staff. For example nurses and nursing auxiliaries to a health provider by a business acting as a principal. It also cannot apply where input tax is recovered by the supplier on related costs because that is not consistent with exemption.

This means that an Umbrella company supplying nursing staff to a recruitment agency must charge VAT.

So, what is the problem?

The problem is that the end-user or NHS Trust quite rightly would not expect to pay VAT due to the Nursing Agencies Concession. So an agency could be in a position where they must pay VAT to their suppliers (if they are using an Umbrella solution) but cannot then pass that cost onto the end-hirer.

Why is this an issue now?

Since IR35 legislation was introduced, many nursing staff who were previously working through their own limited companies have had to switch to using an Umbrella solution. This has resulted in many agencies now using an Umbrella payroll supplier, so must charge VAT on their invoices.

What are the options for agencies?

Clearly this leaves agencies with a very real cash flow risk. So, what are the alternatives that ensure an agency can remain compliant whilst mitigating VAT cashflow exposure?

Direct Engagement

The worker is engaged directly with the end-client hirer (such as an NHS trust) who assumes responsibility for employment and payment. The recruitment Agency bills the trust separately for their margin only.

This option reduces turnover, adds high degrees of complexity and burdens the agency with additional responsibilities and minimal flexibility for the worker.

In-house PAYE

The agency contracts directly with the contractor (without any intermediary between) and assumes employment responsibilities.

In-house PAYE will help to maintain turnover.

But it adds full employer/employee responsibilities into the mix and is not flexible for the worker.

PEO Joint Employment

The worker is employed by both the agency and People Group under a special joint-employment contract. Both parties share the work finding and employment responsibilities with Agency focusing on work finding and People Group as the employer of record.

This option will ensure agencies can retain full turnover. It also minimises responsibilities, offers additional employee benefits and is a flexible option. Plus contractors like its simplicity.

Comparing options

Below we’ve compared all four solutions, to give a full overview of the options available. However, if you would like more information or would like to discuss any of the options, please contact our Client Care team, who will be happy to help.

	Umbrella	Agency In house PAYE	Direct Engagement	Joint Employment PEO
VAT efficient
Portable for Contractor
Agency retains full Turnover
User friendly for Trusts
User friendly for Agencies

	Umbrella	Agency In house PAYE	Direct Engagement	Joint Employment PEO
All inclusive Agency Hourly rate	£25.00	£25.00	£25.00	£25.00
Hours Worked	40	40	40	40
Gross Weekly Billings	£1000	£1000	£1000	£1000
VAT	£200	–	£40	£2*
Payroll intermediary Invoice value (including VAT)	£1200	£1000	£1040	£1002

*Assuming VAT at 1% on non dispersed items

The Solution

People Group Service’s PEO Joint-Employment model documentation has been scrutinised in detail by HMRC, BEIS and The Employment Agencies Standards Inspectorate. We have been advised by Osborne Clarke LLP in relation to the wording of key elements of our joint-employment contract (for the worker) and the Master on Hire Agreement with the additional joint-employer (Agency). We are fully audited by Professional Passport, a trusted partner of both APSCo & TEAM, a corporate member of the REC and a corporate member of the SIA.

We were the first UK provider to offer a genuine joint employment solution. If you would like to find out more information, please get in touch with our friendly Client Care team.

What is PEO?

What do our clients think?

The team at People Group do so much more than just payroll for us. They protect our brand by providing transparent and efficient solutions like PEO, where no questions need to be asked. They guide us through legislative changes and allow us to focus on being great at what we do.

People Group has been a godsend. It’s critical to our business that our candidates are well looked after and have certainty about their pay and the support they receive. The PEO product just makes life so much easier and takes away the hassle factors that were causing headaches for us. We feel we can trust People Group completely and that peace of mind is so valuable.

We’ve been so impressed with People Group, they are amazingly responsive and everything is dealt with smoothly and efficiently – not something you can say about every company. It’s really important to us that we partner with professional businesses that go above and beyond in order to protect our own client relationships and brand reputation