Recruiters pressurised to sign up to controversial tax scheme
1 July 2013
Healthcare recruiters have alleged to Recruiter that they are being pressurised into supplying agency staff through a controversial scheme that saves the NHS millions of pounds in VAT.
Mon, 1 Jul 2013Healthcare recruiters have alleged to Recruiter that they are being pressurised into supplying agency staff through a controversial scheme that saves the NHS millions of pounds in VAT.
The scheme, called STAFFlow and run by accountancy firm PwC, saves the 20% VAT that would have been payable on the salaries of temporary agency staff by allowing trusts to employ them directly.
VAT on the supply of temporary agency staff cannot be reclaimed by the NHS.
However, the actual saving is somewhat less than the 20%, at about 14%, as Recruiter understands that PwC takes a cut of around 6% for providing the service.
Recruiter understands that because this scheme operates by effectively directly employing staff instead of using staff designated 'temporary'; in some cases the period of employment can be as short as a single shift.
Chris Silk, director of specialist NHS tax consultancy, CRS VAT Consulting, says that the savings can be “significant”. He tells Recruiter: “The average NHS trust spend on agency staff is £6m. They wouldn’t normally be able to reclaim that [the 20% VAT from HMRC]", but Silk estimates the saving on such a spend at £1m or possibly more.
A senior executive in one medical agency, who does not wish to be named, tells Recruiter that agencies are under pressure from NHS trusts to supply staff through STAFFlow. “Recruiters are being told that they will not be able to supply staff unless they use this third party,” he says.
Another medical recruiter, who also wishes to remain anonymous, tells Recruiter that there are some trusts “that will only procure staff through the STAFFlow model”, adding “if you want the business you have to sign up to it”.
Recruiter asked NHS Employers about this, but they had not responded as recruiter.co.uk went to press.
Silk tells Recruiter that while not unlawful, PwC’s scheme is “not the sort of thing we would advocate as an organisation”. “When someone contrives a transaction to avoid tax that would otherwise be due, that would fall in the realm of tax avoidance,” he says.
In a statement, PwC says it “categorically refutes the suggestion that this is about tax avoidance”.
“PwC works with NHS trusts to manage the recruitment of locums and reduce reliance on agency staff. Trusts using the service will engage locums directly on their payroll, with HR support outsourced. Locums are engaged for a contracted period of time, which can vary in length.
“We categorically refute the suggestion that this is a tax avoidance scheme – this is about reducing costs associated with the provision of staff, including the VAT that would be paid on those costs.
“Direct contracting is about giving trusts greater visibility and control of their recruitment costs – helping them to manage their workforce more effectively. There is a reduction in agency costs on which VAT is due, as there is for any organisation employing someone directly rather than using agency staff. We have discussed the service fully with HMRC and they have raised no concerns with us.”
PwC refused to respond to further questions from Recruiter, citing client confidentiality.
Steve Porter, operations director of Mediplacements, tells Recruiter that he is concerned that HMRC could come back to agencies to recover VAT that should have been paid.
In a statement, NHS Employers says: "The nature of healthcare is that it is often 24 hours a day, seven days a week. Local employers try to cover short-term absences in the most cost-effective way, using temporary staff, overtime, as well as bank and agency staff.
“These tax schemes can be complex, and because of this, we have asked the Treasury to provide clarity to NHS organisations on the implications of using them so they can plan budgets and ensure as much as possible is spent on patient care. We hope they will be able to do this as soon as possible.
“Because this scheme is relatively new it would always be advised for NHS organisations to seek professional advice before proceeding with it to ensure it is not going against best practice.”
A Department of Health spokesperson told ITV News that VAT schemes are legal. However, the spokesperson added: “HMRC is aware of the issue and actively looking into it to ensure the right tax is paid.”
The scheme, called STAFFlow and run by accountancy firm PwC, saves the 20% VAT that would have been payable on the salaries of temporary agency staff by allowing trusts to employ them directly.
VAT on the supply of temporary agency staff cannot be reclaimed by the NHS.
However, the actual saving is somewhat less than the 20%, at about 14%, as Recruiter understands that PwC takes a cut of around 6% for providing the service.
Recruiter understands that because this scheme operates by effectively directly employing staff instead of using staff designated 'temporary'; in some cases the period of employment can be as short as a single shift.
Chris Silk, director of specialist NHS tax consultancy, CRS VAT Consulting, says that the savings can be “significant”. He tells Recruiter: “The average NHS trust spend on agency staff is £6m. They wouldn’t normally be able to reclaim that [the 20% VAT from HMRC]", but Silk estimates the saving on such a spend at £1m or possibly more.
A senior executive in one medical agency, who does not wish to be named, tells Recruiter that agencies are under pressure from NHS trusts to supply staff through STAFFlow. “Recruiters are being told that they will not be able to supply staff unless they use this third party,” he says.
Another medical recruiter, who also wishes to remain anonymous, tells Recruiter that there are some trusts “that will only procure staff through the STAFFlow model”, adding “if you want the business you have to sign up to it”.
Recruiter asked NHS Employers about this, but they had not responded as recruiter.co.uk went to press.
Silk tells Recruiter that while not unlawful, PwC’s scheme is “not the sort of thing we would advocate as an organisation”. “When someone contrives a transaction to avoid tax that would otherwise be due, that would fall in the realm of tax avoidance,” he says.
In a statement, PwC says it “categorically refutes the suggestion that this is about tax avoidance”.
“PwC works with NHS trusts to manage the recruitment of locums and reduce reliance on agency staff. Trusts using the service will engage locums directly on their payroll, with HR support outsourced. Locums are engaged for a contracted period of time, which can vary in length.
“We categorically refute the suggestion that this is a tax avoidance scheme – this is about reducing costs associated with the provision of staff, including the VAT that would be paid on those costs.
“Direct contracting is about giving trusts greater visibility and control of their recruitment costs – helping them to manage their workforce more effectively. There is a reduction in agency costs on which VAT is due, as there is for any organisation employing someone directly rather than using agency staff. We have discussed the service fully with HMRC and they have raised no concerns with us.”
PwC refused to respond to further questions from Recruiter, citing client confidentiality.
Steve Porter, operations director of Mediplacements, tells Recruiter that he is concerned that HMRC could come back to agencies to recover VAT that should have been paid.
In a statement, NHS Employers says: "The nature of healthcare is that it is often 24 hours a day, seven days a week. Local employers try to cover short-term absences in the most cost-effective way, using temporary staff, overtime, as well as bank and agency staff.
“These tax schemes can be complex, and because of this, we have asked the Treasury to provide clarity to NHS organisations on the implications of using them so they can plan budgets and ensure as much as possible is spent on patient care. We hope they will be able to do this as soon as possible.
“Because this scheme is relatively new it would always be advised for NHS organisations to seek professional advice before proceeding with it to ensure it is not going against best practice.”
A Department of Health spokesperson told ITV News that VAT schemes are legal. However, the spokesperson added: “HMRC is aware of the issue and actively looking into it to ensure the right tax is paid.”
