The VAT concession for medical workers has caused confusion amongst recruitment agencies. With a majority of medical and healthcare contractors now working in the public sector via an umbrella company, recruitment agencies have found themselves facing invoices including VAT. Our article will explain the VAT concession so that your recruitment agency is fully prepared.
The VAT concession for medical workers
When a recruitment consultant finds a suitable position for a candidate and they start working for an end-client, this supply of staffing results in a VAT charge. HMRC provides an exemption for medical workers from attracting this charge of VAT, where the workers are:
- Registered to an appropriate industry body.
- Unregistered, but working under well trained staff that are registered.
- Ancillary workers involved with the care of patients and they are supplied directly to the end hirer.
When the changes to off-payroll in the public sector came into effect in April 2017, a significant number of contractors working in the medical and healthcare sector through a limited company (personal service company) found that all of a sudden they were considered to be working inside IR35. As a result, their take home pay instantaneously decreased. The most popular solution for the worried medical and healthcare workers was to quickly join an umbrella company, as this was the best way for them to legally maximise their take home pay, despite it still being less than when they were considered to be outside IR35.
The problem this caused was that many recruitment agencies had never previously worked with umbrella companies and there was a lack of knowledge regarding the processes involved. Therefore, when a majority of recruitment agencies received invoices with VAT added, there was mass panic and confusion because previously, no VAT would have applied to the invoice they received. This was because the contractors were being supplied directly to the end-client, meaning the VAT concession applied, or they were working through their own limited company and their turnover would not be high enough for them to be VAT registered.
After the changes, the same recruitment agencies started receiving invoices with VAT being charged, in accordance to HMRC legislation. Unfortunately for recruitment agencies, they are unable to add this VAT charge to their supply chain as the VAT exemption will still apply between the recruitment agency and their end-hirer.
HMRC has provided clarification
HMRC has confirmed that the VAT concession only applies to the supply of medical workers by a recruitment agency directly, and not by any other entity such as an umbrella company. Although VAT can be reclaimed by a recruitment agency when they submit their VAT return and there is no detrimental damage on their annual profit, the new legislation has had a negative impact on their cash flow.
You must be working with a compliant umbrella
Should you find that your current umbrella companies are not charging you VAT, your business is at risk of receiving substantial fines from HMRC. These fines would not only damage your business’s bank account, but they would also crush your public image.
Everybody at Churchill Knight Umbrella is fully trained on the latest legislation and are available to discuss any concerns you may have. Please call us on 01707 671641 or email umbrella@churchill-knight.co.uk.
