As outlined in our previous updates, the VAT staff-hire concession which is currently in place allows certain supplies of temporary workers by employment businesses (agencies) to exclude the wages element when charging VAT, i.e. VAT is only due on the commission (unless the commission turnover is less than the VAT registration threshold).
Some employment businesses have historically chosen not to apply the concession and have charged VAT on the whole value of their supplies, whereas others including many nursing and medical staffing agencies have adopted the concession. It was announced in the March 2008 Budget that this concession will be withdrawn from 1 April 2009, meaning VAT will be due on the full value of staff supplies by all employment businesses.
Historically, NHS bodies have always recovered the VAT on all agency staff with the full knowledge of HMRC, however over the last couple of years HMRC have tightened up on VAT recovery on agency staff under the contracted-out services (“COS”) rules. NHS bodies are still able to recover VAT on supplies of nursing staff (including non-qualified nurses, healthcare assistants, etc.) under COS heading 41 and admin/clerical grade staff under COS heading 69. VAT cannot be recovered under any COS heading on the supplies of any other staff provided by an agency, such as doctors, locums, consultants, social workers, physiotherapists, senior IT staff, senior finance staff, etc.
With regards to nursing staff and admin/clerical staff, the removal of the concession will only represent a cash-flow disadvantage because the additional VAT charged is still recoverable.
The removal of the concession will have a detrimental effect of increasing irrecoverable VAT on supplies by agencies which use the staff hire concession and which supply staff that are not eligible for VAT recovery. This is particularly applicable to locum and other healthcare staff agencies, where use of the concession is widespread.
It would therefore be prudent to assess the impact on your 2009/10 budgets and plan accordingly by:
- identifying which staff employment agencies you use
- identify which agencies currently adopt the concession
- differentiate between VAT recoverable and VAT irrecoverable staff supplies
- assess the potential increase in irrecoverable VAT