With the NHS Commissioning Board set to go live on 1 April 2013, innovative approaches to resourcing and management are set to be the order of the day. However, in this period of transformation it is important that the people who make the NHS work – its staff – are not ignored.
The recent controversies surrounding standards of care in some of our hospitals and the fallout from the Francis Report have served to underline that the quality and management of staff is of the utmost importance. REC Health and Social Care took this message to the NHS Agency and Temporary Staffing Conference in the East Midlands last week. At the same time as sharing our views on effective workforce management and strategic engagement in public procurement, we also reiterated our concerns about the proliferation of VAT schemes for the control of non-nursing agency spend across the NHS.
Such schemes allow NHS organisations to reduce the VAT element of their non-nursing agency spend by allowing NHS organisations to directly employ work-seekers for a short period through a staff agency procurement outsourcing service. They are spreading rapidly across the health service at a time when NHS Trusts are under increasing financial pressure and looking to control their costs. However there continues to be no clear ruling from HMRC about their legitimacy.
So how do such schemes actually work? For VAT purposes, it is essential to understand whether the recruitment business acts as an employment agency or employment business. The definitions of employment agency and employment business are set out in Section 13 of the Employment Agencies Act 1973.
Employment agency vs Employment Business
An “employment agency” introduces a work-seeker to a hiring client for direct engagement by that client. The agency charges an introduction fee to the hiring client (usually based on the remuneration paid to the work-seeker), and VAT is charged on that fee. The employment agency has no continuing obligations to either the client or the work-seeker.
This contrasts with the services of an “employment business”, which would itself engage the worker and then provide staff to the hiring client. The employment business charges VAT on the whole cost of the supply of that work-seeker (including earnings, employers’ national insurance and holiday pay) unless a specific exemption or concession applies. The employment business has continuing obligations to both the client and the work-seeker so long as it continues to supply the work-seeker to the client.
In such schemes, the recruitment agency is supposedly operating as an employment agency in that it introduces work-seekers who are then employed either directly by the ‘client employer’ (the NHS trust in this case) or an intermediary professional services company, which has a contract to supply those work-seekers to the trust. However, in the models used, the agency charges the introduction fee based on the hours worked by the work-seeker introduced and has a number of continuing obligations to the client or the intermediary company. Therefore it is not clear whether in fact it operates as an employment agency or an employment business, and therefore how VAT should be charged.
Advice for recruiters
In an environment where NHS organisations are striving to reach a £20 billion efficiency target by 2015, we appreciate the strain many Trusts are under but there continue to be no clear guidance about the status of these schemes. This is creating a significant risk for NHS organisations if HMRC deem these schemes to be illegitimate. Whilst the supply of nursing staff and nursing auxiliaries supplied as a principal to a third party continue to be exempt from VAT as per the terms of the HMRC VAT notice 701/57, the sector urgently needs a steer from government about the validity of the use of these schemes for other medical staff.
We will continue to advise our members that they should exercise caution in entering into these arrangements with any NHS trust. Members should seek specific tax advice from a VAT specialist or HMRC’s confirmation on their status before proceeding with these schemes.