Umbrella Companies and the Nursing Agencies’ Concession

IR35 Public Sector

After recently being made aware of a major umbrella payroll company that has failed to qualify for the Nursing Agencies’ Concession on VAT, I thought it was appropriate to highlight HM Revenue & Customs’ (HMRC) stance and what this means for employment agencies.

The Nursing Agencies’ Concession

The Nursing Agencies’ Concession exempts employment agencies from charging VAT for the following supplies of staff:

  • registered nurses
  • unregistered nurses who are directly supervised by a registered nurse
  • unregistered nursing auxiliaries whose services are supplied to a hospital, hospice or care home providing nursing, where those services form part of the care made to the patient

Umbrella Companies

The case in question is nothing out of the ordinary. The umbrella company engages workers (in this case temporary nurses/ nursing auxiliaries) and supplies them to a third party employment agency. The employment agency supplies the worker to an employer (end user), who thereafter is responsible for the ‘direction and control’ of the worker. From this point onwards, the umbrella company has no involvement in the ‘direction or control’ of the worker and is only responsible for paying the worker’s wages, commission and accounting for the worker’s PAYE and NIC. Subsequently, the umbrella company invoices the employment agency, who in turn invoices the end user based on their previous agreement. As the umbrella company is essentially supplying nurses and nursing auxiliaries it has been generally considered that the supply of these workers is exempt from VAT.

HMRC’s Stance

In a recent application for clearance on this subject, HMRC declared that the umbrella company did not qualify for the nursing concession. HMRC acknowledges that VAT Notice 701/57 (which sets out the nursing concession) does not explicitly rule out the above scenario. However, their opinion is that the nursing concession is only intended to cover the supply of staff by nursing or employment agencies to an employer (i.e. hospital, care home, NHS Trust), which is not the case in this situation. The umbrella company is one stage removed from the employer and so does not directly supply workers. This means that whilst employment agencies can continue to qualify for the concession (if they meet certain conditions), umbrella companies cannot. This is yet another example of the complexities of VAT law in this area of recruitment. Employment agencies should regularly review their circumstances and whether they and their suppliers are eligible for the concession. The imposition of VAT onto umbrella company supplies may have a serious impact on margins in the nursing agency sector.
The Nursing Agencies’ Concession does not apply to umbrella companies that supply nurses and/ or nursing auxiliaries to third party employment agencies.

View the full Nursing Concession in the VAT Notice 701/57 ‘Health professionals and pharmaceutical products’ here.