VAT – Supplies of dental nurses

The client company was a small agency which supplied dental nurses, primarily on a temporary basis, to various dental practices, hospitals and care trusts.  The company had not been charging VAT on the supplies it made.

The questions on which advice was sought were:

1.  Were the supplies of dental nurses liable to VAT at the standard rate or exempt in law?

2.  If the supplies were taxable in law, did HMRC’s concession for supplies of nurses by nursing agencies apply so as to enable the supplies to be treated as exempt?

Article 132(1)(c) of Directive 2006/12/EC allows member states to exempt the provision of medical care in the exercise of the medical and paramedical professions as defined by the member state concerned.  The UK legislation, in Item 2 of Group 7 of Schedule 9 to the Value Added Tax Act 1994, provides that supplies of services ‘consisting in the provision of medical care’ by qualified nurses are exempt from VAT.  This means that supplies of the provision of nurses (rather than the supplies made by the nurses) are standard rated in law as they are not supplies of exempt medical care.  This was the conclusion the First-tier Tribunal came to in the Moher case (Moher (t/a Premier Dental Agency) v HMRC). That decision was affirmed by the Upper Tribunal.

The nursing agencies concession (now set out at paragraph 6.5 of VAT leaflet 701/57 ‘Health Professionals and pharmaceutical products’) allows the exemption of supplies of nurses and nursing auxiliaries by third parties acting as principal where the supply is of:

  • a person registered in the register of qualified nurses and midwives maintained under article 5 of the Nursing and Midwifery Order 2001
  • an unregistered nursing auxiliary who is ‘directly supervised’ by one of the above
  • an unregistered nursing auxiliary, whose services are supplied to a hospital (NHS or private), hospice, care home with nursing falling under Item 4 of Group 7 of Schedule 9 to VATA 1994 and form part of the care made to the patient.

Before 1st October 2010 the employment business supplying the nursing staff was required to be registered with the Care Quality Commission.  For supplies on or after that date to qualify for the concession the supplier must be one who would have been required to be registered with the Care Quality Commission before that date.

To have been required to be registered with the Care Quality Commission an employment business must have been carrying on a ‘regulated activity’ for the purposes of section 8 Health and Social Care Act 2008.  Regulation 3 of the Health and Social Care Act 2008 (Regulated Activities) Regulations 2010 provides that the activities set out in Schedule 1 to those regulations are regulated activities. The client’s activities would not have been regulated so the concession could not apply.

As the First-tier Tribunal pointed out in Moher even HMRC seems to have been confused about the correct VAT treatment of these supplies over the years.  The fact that others in the same business are still wrongly treating their supplies as exempt is evidence of the confusion in the industry.

Based on the decision of the First-tier Tribunal in Reed Employment Ltd v Revenue and Customs Commissioners there was scope to argue that the client agency was liable to account for VAT only on the commission element of its charges, rather than the whole amount charged which included the amounts paid on to the nurses as well as PAYE and NI deductions.  For an analysis of the Reed case click here (443kb).

Update (August 2013)

Since writing this Case Study I have been contacted by a number of agencies supplying dental nurses. Generally the agencies are unsure whether the nursing agencies concession applies to their business or not and are unable to get a useful answer from HMRC.

As explained in the Case Study an agency supplying dental nurses is not carrying on what would have been a regulated activity and for this reason, and for the further reason that dental nurses are not registrable under article 5 of the Nursing and Midwifery Order 2001, the nursing agencies concession cannot, and never could, apply to the agency’s supplies of dental nurses.

In spite of this, HMRC continue to advise agencies that supplies of dental nurses are exempt provided that they fall within the nursing agencies concession.  This advice is, at best, misleading.  Taxpayers have a right to expect that HMRC know what they are doing, particularly where, as here, the relevant provision, the concession, was drafted by them.

It should be noted that employment agencies supplying doctors may no longer be able to benefit from VAT exemption following the decision of the First-tier Tribunal in Rapid Sequence Ltd.



At the time of publication this case study was technically accurate however, as tax law and practice change rapidly, you should take specific advice before taking any action.