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Cost of locums supplied by agencies will increase from April 2009

June 2009

Practices that use agencies to supply locums will see an increase in the cost from April 2009 as agencies are now required to charge VAT on the supply of GPs.

HMRC had been reviewing the existing ‘Staff Hire Concession’ which allowed agencies who supply temporary staff to only charge VAT on their margin and not on the cost of the staff.

The existing concession was introduced in 1997 as a temporary measure to ensure consistency in VAT treatment between employment agencies and employment businesses. Following changes to employment legislation, the concession is no longer necessary. It is also inconsistent with UK and EU law.

From April 2009 this concession has been withdrawn which will mean that employment agencies will need to charge VAT on the supply of their staff. As most GP practices are not registered for VAT, you will not be able to re-cover the VAT which means the cost of agency locums will increase. For practices registered for VAT, the VAT can be re-covered under the partial exemption rules.

For example if the cost of a locum from an agency was £500, then this will increase to £575 and from 1st January 2010 when the VAT increases from 15% to 17.5% the cost will be £587.50.

These VAT rules do not apply to self employed locums and therefore ideally practices should use the services of self employed locums as opposed to using locum agencies.