Hospital trusts warned about tax avoidance
It was revealed back in June of this year, by ITV News, that as many as 30 NHS trusts in England were preferring to use a new form of short term contracts to avoid paying VAT. Traditionally, locum agencies use the standard agency contract whereby the hospital is charged a VAT inclusive fee.
Chief secretary to the Treasury, Danny Alexander, has laid it on the line to the hospital trusts and told them that they must either employ temporary locum doctors or pay the VAT on the cost of hiring their services.
In a letter to the Recruitment and Employers Confederation (REC), Mr Alexander said:
“The issue here is whether NHS trusts employ people, and assume the related costs, risk and responsibilities, or whether they make use of agency staff and incur VAT.
Where the evidence confirms that the medical professionals are directly employed by NHS Trusts on short term contracts, with the trusts taking on the liabilities of an employer, no VAT will be due.
The evidence will include the length of time that the person is engaged for, for example, HMRC would not consider a placement for a period of one shift to be consistent with a contract of employment, but instead, would see that as indicating the agency is making a supply of staff liable to VAT.”
Tax avoidance within the public sector is outlawed but it is rumoured that large accountancy firms have developed the schemes with the sole purpose of avoiding tax.
Some doctors have been hired for one shift at a time resulting in some being given as many as 200 P45s!
In a time when contracting within the public sector is becoming increasingly difficult because of the ignorance being displayed over the ‘off-payroll’ rules could NHS trusts turn to contractors as a way of legitimately saving themselves PAYE tax and NIC, although they would have to pay any VAT of course! If so, they may show more favour in aiding freelancers to preserve their IR35 status rather than forcing them down the IR35 avenue for no other reason than a political one. Although the current issue is one surrounding doctors it is quite perceivable that trusts may look at other areas of their organisations to make legitimate tax savings.
what an example of how dysfunctional and out of control hmrc are. When ticking off people for not paying tax on time they bang on about essential services such as health, and then they want to tax the health service.
Do they want to give to the health service, or do they want to take away from the health service?
Tax system, completely out of control.