NHS tax avoidance investigated

It's deeply concerning that not only is the corporate world being advised on complex schemes to avoid tax owed, but this activity appears to extend to the public sector too.

The NHS has clear guidance that it should not enter into any schemes the primary purpose of which is to avoid tax, yet these allegations suggest that is exactly what has been taking place.

Treasury ministers should be conducting an investigation into these allegations as a matter of urgency, including whether these type of VAT avoidance schemes are more widespread in the public sector than just the NHS.

STAFFflow is a service run jointly by PwC and Liaison that helps NHS trusts manage the recruitment of locums.

PwC provides consulting, pensions and tax advice. Liaison manages the day to day support and administration of the service.

Trusts using the service will engage locums directly, rather than use agency staff, with STAFFflow providing payroll and other HR support.

This direct contracting gives trusts greater visibility of and control of their recruitment costs - for example they can see exactly how much a locum is being paid and how much is going to the recruitment agency - and helps them manage their workforces more effectively.

There is a reduction in agency costs on which VAT is chargeable, as there is for any organisation employing someone directly rather than using agency staff.

HMRC is aware of this issue and we are actively looking into it to ensure the right tax is paid. A placement for a period of one or a few shifts is clearly not consistent with a contract of employment but, rather, a supply of staff by the agency, liable to VAT in full.

NHS Trusts can either employ people and assume the responsibilities that go with that or use agency staff and incur VAT in full. That choice is for NHS managers but the VAT rules are clear.

We discussed in detail the tax treatment of STAFFflow with HMRC when we started the service two years ago. HMRC agreed the position and have raised no concerns subsequently.

MTW has taken many steps to reduce its reliance upon expensive and inconsistent agency clinical workers.The replacement of these workers by bank employees paid through our payroll is better for our patients.

These tax schemes can be complex, and because of this, we have asked the for 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 dothis 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.

NHS trusts must adhere to current employment and tax legislation. HMRC is aware of the issue and actively looking into it to ensure the right tax is paid.

In the interim, VAT schemes are legal but trusts should think long and hard about their arrangements and make sure they are always in the public interest.