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Nursing Agencies VAT Concession and Umbrella Companies

What is the Nursing Agencies Concession?  

Usually, recruitment agencies must charge VAT when they supply staff to an end-hirer. The Nursing Agencies Concession exempts agencies from charging VAT where the staff supplied are registered nurses, unregistered nurses working under the supervision of registered nurses or nursing auxiliaries, where the services provided form part of patient medical care, such as administering drugs or taking blood pressures.

Where the agency supply qualifies for the concession in supplying nursing staff directly to the end-hirer (for example an NHS trust) the agency doesn’t have to charge VAT.

Where nursing staff are supplied through a third party

The concession is intended to reduce the cost of medical staff, so you could be forgiven for expecting it to apply to the whole supply chain. In fact, we’ve spoken to several agencies who did not expect to pay VAT because of the logical belief that the concession would apply to umbrella companies.

However, HMRC’s view is that the concession applies only to the supply of nursing staff to an end-hirer by the agency, not to the agency by a third party (for example an umbrella company).

Why doesn’t the concession apply to umbrella companies?

HMRC’s view is that the nursing concession is only intended to cover the supply of staff by a nursing or employment agency to an end user and they wish to ensure that the concession is not expanded to include transactions that were not originally intended to benefit.

HMRC are therefore very clear in their advice that the Nursing Concession does not apply to the supply of nurses to a third-party employment business. This is regardless of whether the employment business makes an onward supply of those workers to an end user, even if that onward supply does qualify for the concession.

This means that an umbrella company supplying nursing staff to a recruitment agency must charge VAT, even if the recruitment business does not need to charge VAT to their end-client due to the concession.

Why this may cause a problem

Ordinarily, VAT is passed down the supply chain to the end-user of the goods or services. In this case, the agency would pay VAT to their suppliers (the umbrella company), and would in turn charge VAT when they invoice their clients (the NHS trust). Where the client expects and has budgeted for VAT on the supply of staff, there should be no issue.

However, where nursing staff are supplied, the end-user quite reasonably does not expect to pay VAT because the supply of nurses by agencies is exempt under the Nursing Agencies Concession.

This leaves some agencies in a position where they must pay VAT to their suppliers, where the concession does not apply, but don’t charge it to their clients, where it does. It’s therefore easy to understand why a nursing agency would resist the suggestion that they should pay VAT to their umbrella suppliers.

Why is this coming up now?

Many contractors, including a significant number of nurses, have found themselves working inside IR35 as a result of the reform of off payroll working in the Public sector. Many of these nurses were working through their own limited companies before the reform and have now switched to umbrella employment. As a result, many agencies are making large numbers of payments to umbrella companies for the first time. In most cases, nurses trading through their own limited company didn’t have to register for VAT because their company’s turnover was below the threshold of £85,000, so they didn’t have to charge VAT even though the concession did not apply. This is not the case for Umbrella companies and they must charge VAT on their invoices.

What can be done?

As the Nursing Agencies Concession is an informal, extra-statutory concession, there is no value in challenging HMRC’s interpretation and umbrella companies have to charge VAT on their invoices. If your umbrella company is not charging VAT, you as a recruiter are at risk if they are challenged as in many cases the VAT that should have been charged can be invoiced up to you. This would also raise serious questions about the umbrella’s expertise in a key area of compliance. As always, our advice is to work only with FCSA Accredited Members, who have a commitment to doing things properly and will not put your business at risk.

If you have questions about this or any issue, or if Orange Genie can help in any way, please contact our expert team on 01296 468 483 or email


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