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Government clampdown on short-term contracts for doctors

Warning that use of contracts to avoid VAT on locum fees is seen as tax avoidance

Ingrid Torjesen

Friday, 06 September 2013

The Government has warned hospitals against employing doctors on ultra short-term contracts as a means of avoiding VAT.

Danny Alexander MP, chief secretary to the Treasury, has written to the Recruitment and Employment Confederation (REC) and warned that both HMRC and the Department of Health are reviewing NHS VAT schemes for the supply of non-nursing staff to ensure that they are appropriate and tax compliant.

In the letter, he said that the government does not condone tax avoidance in any circumstance, and HMRC will robustly challenge tax avoidance schemes and artificial arrangements designed to reduce VAT liability.

Several trusts in England are thought to be using short-term contracts on which VAT is not payable. These contracts are being used instead of the traditional locum model, where the supplying agency charges the hospital a fee plus VAT.

ITV News has reported that the schemes have been developed by accountancy firms to reduce tax paid by hospital trusts, with some doctors reportedly only hired for only one shift at a time.

Mr Alexander said: “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.”

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