Is Your Staffing Agency Interpreting VAT Guidelines Correctly and Could You Be at Risk?

When you book agency staff, VAT might not be your first concern. But if the agency supplying your staff gets VAT wrong, you could be left with the financial consequences, especially now as HMRC increases its activity in this area.

We’re seeing more confusion around how VAT is applied to staffing in social care, particularly in residential care settings. Here’s what care providers need to know to avoid surprise costs or compliance issues.

What’s the issue?

Some staffing agencies claim that they don’t need to charge VAT when supplying carers, support workers and even non-care roles like chefs to care homes. Often, they refer to the “nursing concession,” a VAT rule that allows certain healthcare services to be exempt.

But that exemption only applies in very limited situations. And in most cases we see, the criteria simply aren’t being met.

What do we mean by “residential care setting”?

When we talk about residential settings, we mean care homes that provide personal care but do not have nursing staff on-site. These homes may support older adults, people with dementia, or individuals with learning disabilities. But they are not nursing homes, and do not employ nurses or other qualified clinical staff to oversee day-to-day care.

This matters because the VAT exemption only applies if care is being delivered by or under the supervision of a qualified health professional such as a nurse or doctor. If there’s no such person involved in the placement or setting, VAT should be charged.

What HMRC says about VAT and staffing

According to HMRC’s VAT Notice 701/57 and VAT Notice 701/2, VAT exemption only applies to staffing supply if:

  1. The care is delivered by or under the supervision of a qualified health professional
  2. The supply is part of the agency’s own CQC-regulated activity

A qualified health professional means someone on a recognised professional register such as a nurse, doctor, occupational therapist or physiotherapist. A senior carer or team lead doesn’t qualify unless they are formally registered with a relevant healthcare body. You can view the full list in VAT Notice 701/57, section 2.1.

Multiple VAT notices can apply to the care sector covering welfare services, health professionals, and temporary staffing. It’s important to understand which one applies to your situation and not assume that an exemption mentioned in one applies to all services.

Why VAT Notice 701/57 matters

This is the primary notice covering the VAT treatment of health professionals. According to the rules:

  • The services must be provided by or under the direction of a registered health professional
  • The work must fall within their clinical scope
  • The agency must be delivering this as part of its own regulated activity such as complex care or nursing services

In the case of carers placed into a residential care home without nurses on-site, these conditions are almost never met. So VAT should be charged.

What about non-care roles like chefs?

We’ve also seen some agencies claim VAT exemption when supplying non-care staff like chefs, cleaners, kitchen assistants or maintenance workers. In these cases, there is no basis for exemption under the healthcare or welfare VAT notices.

The only reason these agencies might not charge VAT is if they fall below the VAT registration threshold, which is currently £90,000 in annual turnover. That would mean they are not registered for VAT at all. While this is legal, it raises its own concerns.

A very small agency operating below that threshold may not have the scale, compliance systems or financial stability you’d expect from a professional supplier. It’s worth considering whether that introduces operational or reputational risk for your organisation.

Why most agencies don’t qualify

In England, it is not possible for a staffing agency to be CQC-registered solely for the supply of agency staff to care homes. Since 2010, the CQC has not regulated introductions or placements where the agency does not deliver or manage care. These functions are explicitly outside of its scope.

If an agency is CQC-registered, it will be for a different part of the business such as a domiciliary care or supported living service. That registration does not extend to their staffing supply and it does not exempt them from charging VAT.

If an agency is claiming exemption because they are CQC-registered, it’s worth asking exactly what their registration covers. In almost all cases, it will not apply to the staffing you are receiving.

What this means for you

While VAT is the agency’s legal responsibility, your organisation could still face consequences if it’s applied incorrectly.

If HMRC finds VAT should have been charged, the agency may issue retrospective VAT-only invoices. If you’ve reclaimed VAT incorrectly or didn’t reclaim when you should have, your organisation could face backdated payments, accounting corrections or penalties.

Some providers include indemnity clauses in contracts with agencies, but these don’t guarantee protection. HMRC can still pursue care providers directly, and enforcing a clause after the fact can be time-consuming or costly.

Why VAT matters financially

Most care providers can’t reclaim VAT, so it becomes a real cost to the business. That makes it tempting to work with agencies that don’t charge VAT. But if the exemption is being applied incorrectly, that short-term saving could come at a much bigger long-term cost.

We are also seeing increased scrutiny from HMRC in this area, particularly around agency supply into residential care. It’s no longer safe to assume VAT won’t be reviewed.

What you should do

Here are five steps to reduce your risk and protect your organisation:

  1. Ask the agency how the supply falls under their CQC-regulated activity
  2. Ask whether care is supervised by a qualified health professional and who that is
  3. Challenge any agency not charging VAT and ask for a written explanation
  4. Keep clear records of each agency’s VAT treatment
  5. Be cautious with very small suppliers who fall below the VAT threshold and assess their overall risk profile

Final word

We work with hundreds of agencies and we are yet to see a case where a staffing agency qualifies for VAT exemption on the supply of carers to residential care homes. Even where agencies have CQC registration, it almost always relates to a different service, not their staffing function.

As HMRC increases its activity in this area, now is the time to check your arrangements. A short conversation with the agency, your finance team or a VAT adviser could save your organisation from serious cost and disruption later on.

How Florence can help

Managing VAT compliance and agency supply can be a real drain on time and resources. Florence offers a Neutral Vendor Agency Manager service that brings all your agency bookings into one platform, with VAT handled correctly and transparently across the board.

We help care providers reduce risk, improve audit readiness and gain control over agency spend, without the admin burden. If you’re unsure about your current agency arrangements, we’re happy to talk through how we can help.