Umbrellas – are they exempt?

Are umbrellas VAT exempt?

OK, so in this instance the term “umbrella” is used in regard to umbrella companies working in the medical personnel supply industry and recent contact from such a company suggests that HMRC may be taking a closer look at supplies of medical staff made by umbrella companies.

Generally speaking, the supply of health professional staff is standard rated although, under an informal Extra Statutory Concession, informally call the Nursing Agencies’ Concession, the supply of:

  • a qualified nurse who is registered under article 5 of the Nursing & Midwifery Order 2001; or
  • a nursing auxiliary who is directly supervised in the provision of medical care by a qualified and registered nurse; or
  • a nursing auxiliary whose tasks include the undertaking of medical care, such as the giving of medication or the taking of blood pressure

may be treated as exempt from VAT.

However, the concession only applies if the supplies of such staff are made directly to a hospital, hospice or to a care home that provides medical care that is exempt under item 4 of Group 7 of Schedule 9 of the VAT Act 1994 and that is supplied as part of the care made to the patient or resident.

Therefore, while many supplies of health professional staff made by nursing agencies or employment businesses may qualify for exemption by virtue of the concession, the last proviso means that an umbrella company in the supply chain cannot benefit from the concession as it provides staff to another staffing agency or entity, not to the end user.

HMRC provides guidance in regard to the Nursing Agencies’ Concession at section 6.5 of their Public Notice 701/57.

However, in HMRC’s notice the requirement for the supply to made directly to the end user is simply attached to the third of the described supplies of staff and thus, in my opinion, is not immediately clear that the requirement actually relates to all three described supplies of staff.

It would have perhaps been much more clear for the requirement to have been in a sentence on its own but, that said, technically, from a purely grammatical point of view, the Notice does advise that the requirement relates to all 3 of the supplies bulleted in section 6.5 of the Notice and as bulleted by us in this article, not just that to which it is attached.

For this reason, if HMRC were to visit and assess for VAT on supplies of medical staff which, having relied upon the guidance in the Notice, an umbrella company had treated as exempt, I would be surprised if a challenge to this based upon misleading or ambiguous guidance would be accepted by HMRC or could even be sustained at Tribunal, although it may be a useful argument to present in regard to any inaccuracy penalties HMRC may choose to raise.

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