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NHS avoid VAT. No good, say HMRC

An embattled HMRC now faces its next big challenge – how to tackle the NHS avoidance of VAT. Read more below…

Using a scheme backed by PWC, the NHS is able to avoid VAT on locums.  The so-called PWC VAT Liaison Model means that the NHS can look at agency-placed locum doctors and nurses as “employees” of the NHS or of their own limited companies for VAT purposes.

It’s a convoluted process, but the net result is that the NHS is able to save 20%  on a lot of these placements.  A significant cost saving.  As does HMRC, the NHS faces its own set of problems; budget cuts and increased pressure on all services is leading the trusts nationwide to seek efficiencies where they can.  It’s not surprising this has come to light, and HMRC’s response is that they’re already looking into the scheme.  HMRC has released the following statement:

HMRC is aware of this issue and we are actively looking into it to ensure the right tax is paid. A placement for a period of one or a few shifts is clearly not consistent with a contract of employment but, rather, a supply of staff by the agency, liable to VAT in full.

NHS Trusts can either employ people and assume the responsibilities that go with that or use agency staff and incur VAT in full. That choice is for NHS managers but the VAT rules are clear.

So what does it all mean?

Basically, a candidate placed by an agency need to be defined by the same terms in relation to different matters…  They can be self employed, umbrella, PSC, or an employee  of the agency or the NHS…  As long as the judgement on their status is consistent.  What you can’t do is have a mixed-bag approach – ‘this locum is and NHS employee’ (for VAT purposes) and then when it comes to other employment responsibilities, they are viewed as self employed, or an employee of ‘someone else’.  Unfortunately you can’t have it both ways – one must either be an employee, or not.  The duality of representation that’s occurred is likely to land the involved parties in hot water.

One interesting fact is that the scheme provider is a proud member of APSCO.  APSCO is a trade organisation that a number of umbrella / limited company providers pay to join – the idea being that the APSCO accreditation lends an air of credibility.

Forest  is an expert in the areas of tax and employment legislation.  We’re proud to be an ICAEW member firm as well as an authorised, FCA regulated financial advice firm.  When you’re taking advice in complex areas, these are important qualifications to look out for.  So, just get in touch with forest today and get the advice you need to ensure you’re compliant.

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