Across the UK, many staffing agencies in health and social care are incorrectly charging, or not charging VAT, probably adding up to hundreds of millions of pounds each year.
What is ‘the nursing concession’?
This issue largely stems from a misunderstanding (or misinterpretation or ignoring ) of an HMRC rule known as the nursing concession–a VAT exemption. This legislation allows staffing agencies to supply nurses and some care staff without adding VAT, but only in specific situations.
The risks of incorrect VAT charging
Some staffing agencies and care providers claim the rules are unclear, but in reality, they are quite straightforward. Unfortunately, some agencies choose not to apply the concession correctly to lower their rates, making their rates seem cheaper.
While choosing a lower-cost agency that doesn’t charge VAT might seem like a tempting financial move, it could indicate deeper issues with the agency and also lead to legal implications for your organisation.
What staffing agencies need to charge VAT?
Any company with a turnover of more than £90,000 per year must be VAT-registered and charge VAT on relevant goods and services.
For staffing agencies, turnover includes agency workers’ wages and deductions.
Example:
If an agency charges £200 for a carer’s night shift, its recorded turnover should be £200—not just its profit.
This means an agency only needs to complete 425 shifts per year (or 8 shifts per week) to exceed the £90,000 VAT threshold.
Why does this matter?
- If an agency is below the VAT threshold, it’s extremely small—meaning it likely lacks robust systems for safe recruitment, training, and compliance.
- Larger agencies staying under the VAT threshold are likely using questionable practices—such as misreporting turnover, using complex employment models, or operating through multiple entities to avoid VAT.
Either way, agencies avoiding VAT should raise a red flag. If they’re cutting corners here, what else are they compromising on?
When does the nursing concession apply?
If an agency is VAT-registered, when can they supply workers without adding VAT?
According to HMRC’s nursing concession (Section 6.6):
- If the agency directly employs the nurse → No VAT applies.
- If the agency supplies non-care staff (e.g., kitchen or domestic workers) → VAT must be added.
The grey area is carers, senior carers, and support workers. For VAT exemption to apply, they must:
✔️ Be supervised by a nurse
✔️ Provide some form of medical care
✔️ Work in a hospital or nursing care home
This means the nursing concession does not apply in residential care homes or supported living environments without nursing.
The impact of umbrella companies
HMRC has also clarified that if an agency employs workers through an umbrella company, VAT must be charged—even for nurses.
Red flags to watch out for
- An agency says it’s not VAT registered?
Ask why. They may not understand VAT rules—or may be deliberately avoiding compliance. - An agency says it doesn’t need to charge VAT?
If you operate a residential home without nursing or supported living, this is almost certainly incorrect—and while HMRC is likely to go after the agency, it can also potentially pursue the care provider.
How can we help?
Managing multiple agencies across your care homes can be complex. Agency Manager makes it simple—giving you full visibility, financial control, and compliance processes to protect your business.
Want to learn more? Get in touch using the form below.
(This article reflects Florence’s views and is not legal or tax advice. For professional guidance, consult an accountant or solicitor.)
