VAT & Supplies of Agency Nursing Staff

The recent VAT case of 1st Alternative Medical Staffing Ltd provides important clarification on VAT treatment for employment businesses supplying nursing and care staff. The central issue was whether such supplies are exempt from VAT as services “closely related” to medical care under UK and EU law.

1st Alternative supplied nurses and care assistants to hospitals and care homes, treating the reimbursement of staff costs as VAT-exempt and only charging VAT on its commission. HMRC disagreed, arguing VAT was due on the full amount received. The dispute hinged on whether the company’s supplies qualified for exemption under the VAT Act which requires the supplier to be a “state regulated institution.”

The FTT found that, although the company’s staff were essential to the provision of medical care, the business itself was not registered or licensed by a statutory body during the relevant period. Its previous registration with the Care Quality Commission (CQC) had lapsed in 2010, and registration under the Employment Agencies Act 1973 was insufficient for VAT exemption purposes. The Tribunal emphasised that the exemption is only available to institutions that are officially regulated under an Act of Parliament, as defined in the notes to the legislation.

The Tribunal also considered whether the supply of agency nurses could be “closely related” to medical care. While it accepted that such staff are indispensable for hospitals, it noted that exempting commercial agencies could distort competition, which is contrary to the principles of the VAT Directive.

Ultimately, the Tribunal dismissed the appeal, confirming that the company did not qualify as a “state regulated institution” and therefore could not benefit from the VAT exemption. As a result, VAT was due on the full consideration received, not just the commission.

This decision serves as a clear reminder that, for VAT exemption on supplies closely related to medical care, the supplier must meet strict regulatory requirements. Employment businesses in the healthcare sector should ensure they are properly registered if they wish to benefit from VAT exemptions, as failing to do so can result in significant VAT liabilities.