The short answer: do nursing and care agencies charge VAT?
Usually yes. When you supply a worker who then takes direction from the client, you are making a supply of staff, and a supply of staff is standard-rated, so 20 percent VAT sits on the full charge including the wages you pass through. HMRC sets this out in its guidance on employment bureaux, and it catches a lot of new agency owners who assume that because they are placing carers and nurses, the work must be exempt healthcare. It is not. You are supplying people, not care.
The one route out is a specific relief. The Nursing Agencies Concession, in section 6 of HMRC VAT Notice 701/57 on health professionals, lets a state-regulated agency treat the supply of nurses, nursing auxiliaries and care assistants as exempt rather than standard-rated, provided the worker is delivering nursing or medical care to the final client and every condition is met. Meet the conditions and you charge no VAT. Miss one and you are back to 20 percent.
This guide is written by LOYALS, a London firm of chartered accountants that runs payroll, VAT and PAYE compliance for care and healthcare staffing businesses, and it is the difference between exempt and standard-rated that decides both your VAT bill and how competitive your rate card looks. If you want the wider picture on how the care and health sector is taxed, our healthcare accountants page pulls the payroll, VAT and compliance threads together in one place.
What is the Nursing Agencies Concession, and when does it apply?
The Nursing Agencies Concession lets a state-regulated agency exempt its supply of nursing staff instead of charging 20 percent VAT on staff-hire, but only when all of the Notice 701/57 conditions are met. It is an extra-statutory concession, which means it is a relaxation HMRC applies in practice rather than a line in the VAT Act, so the conditions are read strictly.
Three things have to line up. First, the agency itself must be state-regulated. Second, the worker has to be a registered nurse, or an unregistered nursing auxiliary or care assistant who is providing nursing or medical care under the direction of a registered health professional. Third, that care has to be delivered to the final client, the patient or resident, not to the agency. Where the concession applies, the supply is exempt and no VAT is charged. Where any condition fails, the default returns and the whole supply is standard-rated at 20 percent.
The trap is assuming that "healthcare-adjacent" is enough. It is not. HMRC's manual is explicit that dental nurses and operating department practitioners do not qualify for the concession, because they are not registered under the Nursing and Midwifery Order and are not supervised by someone who is, so those supplies stay standard-rated. Admin staff, catering staff and cleaners placed into a care setting are standard-rated too. The concession is about who delivers nursing care, not about which building the worker walks into.
The flowchart below is the version we walk through with agency owners on the first call.
Two agencies can place the same nurse on the same ward and reach different answers, because the concession turns on regulation, supervision and what the worker actually does. That is exactly why it is worth documenting your position per contract type rather than applying one blanket rate. Our team walks through this with agency owners as part of the VAT returns and Making Tax Digital work, so the split is defensible if HMRC ever asks.
When you must charge 20 percent, and why your client hates it
If the concession does not apply, the supply is standard-rated at 20 percent, and for a client that makes VAT-exempt supplies that 20 percent is usually a dead cost they cannot recover. A care home, a domiciliary provider or an NHS body mostly makes exempt or non-business supplies, so it has little or no input VAT to reclaim. When you add 20 percent to a staff invoice, most of that lands on the client's bottom line for good.
Put a number on it. On a £22 an hour charge-out rate, standard-rating adds £4.40 of VAT, taking the client's cost to £26.40. Over a single full-time placement of around 40 hours a week, that is roughly £9,150 a year of extra irrecoverable cost, per carer, compared with an exempt supply. Multiply that across a rota and it is the reason a care home will quietly move its block bookings to whichever agency has its VAT treatment right.
Registration matters here too. You must register for VAT once your taxable turnover passes the £90,000 threshold in any rolling 12 months, and standard-rated staff supplies count towards that figure while exempt supplies under the concession do not. Agencies that run a mix of exempt nursing supplies and standard-rated placements often misjudge where they sit, either registering late and facing a bill, or registering and then failing to recover the input VAT they are entitled to. The gov.uk VAT registration guidance sets out the threshold, but the mix is where the judgement lies. If you are close to the line, our guide to whether domiciliary care is VAT exempt works through the same exempt-versus-taxable question from the care provider's side.
Where the margin actually goes on a temporary care shift
On a £22 charge-out rate, roughly £13 goes to the carer, about £3.20 to statutory on-costs like employer National Insurance, holiday pay and pension, and most of the rest to running the agency, leaving a net margin that is often under 10 percent. That is the number owners tend to underestimate, because the wage on the payslip is only part of what a placed hour actually costs.
Start with the wage floor. The National Living Wage rose to £12.71 an hour for workers aged 21 and over from April 2026, per the gov.uk minimum wage rates, and most care roles pay a little above it to attract staff. Then the on-costs stack on top: employer National Insurance at 15 percent on earnings above the £5,000 secondary threshold, holiday pay accruing at 12.07 percent of hours worked, and auto-enrolment pension at 3 percent employer on qualifying earnings. None of that is optional, and all of it has to be inside your charge rate before you have covered a single overhead.
Now put the VAT question next to that margin. If a mispriced or misclassified supply forces you to absorb 20 percent VAT to keep a client, you have handed away several times your entire hourly margin. If a payroll error under-pays holiday or under-accrues pension, the correction comes straight out of that same 9 percent. This is why care staffing is a volume business run on discipline: the numbers only work when the on-costs, the VAT treatment and the charge rate are all set deliberately, not estimated.
Watch the Employment Allowance public sector restriction
One quiet trap sits in the on-costs. The £10,500 Employment Allowance reduces your employer National Insurance bill, but you cannot claim it if more than half of your work is done in the public sector. An agency that mostly supplies nurses to NHS trusts can fall the wrong side of that test, losing the allowance it assumed it had. It is worth checking your public-versus-private split each year rather than claiming on autopilot, because getting it wrong means an unexpected National Insurance bill on a workforce where every pound of on-cost matters.
The April 2026 umbrella PAYE change and IR35: your new supply-chain liability
From 6 April 2026, if an umbrella company sits in your labour supply chain, the recruitment agency that supplies the worker to the end client becomes responsible for accounting for the PAYE and Class 1 National Insurance on those payments, and where there is no agency the responsibility falls on the end client. This is a real shift in who carries the risk, and it lands squarely on staffing agencies.
Until now, if you paid workers through an umbrella company, that umbrella operated the payroll and carried the PAYE obligation. Under the new gov.uk rules for labour supply chains from 6 April 2026, the agency that supplies the worker is made responsible, and can be held jointly and severally liable if the tax is not accounted for correctly. HMRC estimates the change affects around 700,000 workers. In plain terms, a non-compliant umbrella in your chain is now your problem, and potentially your bill.
There are two sensible responses. Either run real due diligence on any umbrella you use, and keep evidence of it, or bring the payroll in-house so you control it end to end. For many agencies the second option is cleaner, because it also fixes the holiday-pay and pension accuracy that decides the margin. Either way, this is not a wait-and-see change.
IR35 sits alongside it. Since April 2021, for medium and large end clients, the client decides the off-payroll status of any worker operating through their own personal service company, and the fee-payer, often the agency, then operates PAYE if the engagement is inside IR35. If you place locum nurses or doctors who trade through a limited company, you are usually in that chain. The gov.uk off-payroll working guidance sets out who decides and who pays, and our guide to IR35 for locum doctors and dentists works through the status tests in detail. For a deeper dive on the VAT treatment of clinical work you place, our guide on private healthcare and when a cosmetic mix triggers VAT registration covers the exempt-versus-taxable line from the practitioner's side.
Here is how the three common approaches actually compare for a nursing or care staffing agency:
| What you need | In-house / DIY | Generic accountant | LOYALS specialist |
|---|---|---|---|
| Confirms whether the Nursing Agencies Concession applies per contract | ✗ You self-classify | ● If asked | ✓ Reviewed by contract type |
| Splits exempt nurse supplies from standard-rated staff-hire on the VAT return | ✗ | ● | ✓ Built into the return |
| Handles the 6 April 2026 umbrella PAYE supply-chain liability | ✗ | ✗ | ✓ Due diligence or in-house payroll |
| Reviews IR35 status for the PSC locums you place | ✗ | ● | ✓ Status and fee-payer checks |
| Prices shifts so employer NIC, holiday and pension are actually covered | ✗ | ● | ✓ Cost model per placement |
| Open Mon to Sat for an urgent client or VAT question | ✗ | ✗ Mon to Fri 9 to 5 | ✓ 10am to 7pm Mon to Sat |
This is why care and healthcare staffing agencies tend to move from a generalist to a specialist once VAT and payroll start to bite.
What this means for you: getting VAT and PAYE right
The work here is mostly discipline, not exotic planning, and most of it is worth doing before your next VAT return rather than after it.
- Map your supplies to the concession. Go through each contract type and decide, in writing, whether it is an exempt nursing supply or standard-rated staff-hire. One blanket rate across everything is the fastest way to get it wrong in both directions.
- Check your registration position. Add up only your taxable supplies against the £90,000 threshold, keeping exempt concession supplies separate. If you are close, model it before you cross the line rather than after.
- Audit your umbrella chain now. For the 6 April 2026 rules, know exactly who pays your workers, get evidence that any umbrella accounts for PAYE correctly, or move the payroll in-house so the liability is yours to control.
- Rebuild your charge-rate model. Put the £12.71 wage floor, 15 percent employer National Insurance, 12.07 percent holiday and 3 percent pension into a proper per-hour cost, then set your rate above it deliberately.
- Test the Employment Allowance. Work out your public-versus-private split before claiming the £10,500, because supplying mostly to the NHS can switch the allowance off.
- Document the IR35 chain. For any limited-company locum you place, know who makes the status determination and who is the fee-payer, and keep the paper trail.
None of this is glamorous, but on a business running at a single-digit margin it is the difference between a healthy agency and one that is quietly losing money on compliant-looking invoices. LOYALS runs exactly this work, VAT treatment, weekly payroll and PAYE compliance, for care and healthcare staffing businesses across London, so the split is right the first time and defensible if HMRC asks. You can check your agency's position in a free call.