Concerns have again been raised about the change in tax legislation that will allow employment agencies to charge VAT.
The withdrawal of HMRC's staff hire concession has caused hospital finance managers to fear that the cost of taking on temporary doctors and other medical professionals will sharply increase.
Currently, medical staffing agencies only charge VAT on the commission element of their invoices and not on the salary element, but with effect from 1 April 2009 the tax will be charged on the total cost, including salary.
The change comes on top of the general review that the Revenue has been conducting of the whole area of recovery of VAT on the provision of agency employees.
The VAT charge on all temporary medical staff is estimated to cost the NHS up to £10 million a year, and this is expected dramatically increase following the policy withdrawal of the concession.
In response, the Public Sector Tax Forum is putting together a report on the impact of agency costs, and is to make the case to HMRC for universal recovery of VAT on medical service fees.
The forum is composed of NHS Trust finance directors and senior managers, and provides an avenue for high-level consultation on tax policy issues between trusts and the Government. It believes that the further limiting of the categories of staff on which VAT can be reclaimed is also under consideration.
Earlier this month, the Recruitment and Employment Confederation criticised the withdrawal of the staff hire concession, claiming it will lead to an increase of as much as £400 million in the cost of supplying temporary workers to sectors such as charity, education, social housing and financial services.
