In normal practice an agency would charge VAT to an end-client, but the ‘Nursing Agencies Concession’ is a VAT exempt sector for certain workers providing medical care for organisations like the NHS. This meant that agencies were not charging VAT upwards in the chain but were still having to pay VAT down the chain on payroll costs when using an Umbrella provider, therefore creating a cashflow problem. There was also a misunderstanding from certain Umbrella providers that they could operate in the standard agency-provider way and get away with not charging VAT simply because it was healthcare/nursing specific. This was proven as being non-compliant and a solution was needed.
That solution came through the agency/client and the provider becoming ‘Joint-Employers’ or sharing the employment responsibilities and having this confirmed by a specific Employer Tax Reference number per each arrangement. Through a Joint Employers agreement, an agency or end client can see vast weekly savings from the reduction of VAT on invoices. Payments for the workers’ earnings, holiday pay and employment costs between the joint employers are classified as disbursements and are therefore exempt from VAT. The only element of payroll that remains eligible for VAT is Orbital’s admin fee.