Accountants for Healthcare Recruitment Agencies: 2026 Guide
Healthcare recruitment is one of the few sectors where VAT can work in your favour and against you at the same time. A nursing agency may be able to supply staff VAT-free to an NHS trust or care home, yet still be charged VAT by the umbrella companies its nurses work through. Add the April 2026 umbrella liability reforms, IR35 and CQC registration, and a general accountant can easily get it wrong. This guide from Filing Accounts UK covers what nursing, care and allied health recruitment agencies genuinely need to know, using verified HMRC guidance.
At Filing Accounts, we work with agencies placing nurses, healthcare assistants and other clinical staff into NHS bodies, hospitals, care homes and private providers.
VAT and the Nursing Agencies Concession
Unlike most recruitment, supplies of nursing staff can qualify for VAT exemption under the nursing agencies concession in HMRC’s VAT Notice 701/57 (Health professionals, pharmaceutical products and VAT). The concession covers an agency supplying:
- Registered nurses and midwives on the NMC register, providing medical care to the final patient
- Unregistered nursing auxiliaries who are directly supervised by a qualified nurse or midwife
- Unregistered nursing auxiliaries supplied to a hospital, hospice or care home with nursing, where their services form part of the patient’s care
The receiving organisation can be an NHS body, local authority, charity or private provider. The key condition is that the agency itself must be registered with the Care Quality Commission (or the equivalent regulator in Scotland, Wales or Northern Ireland). If you are not registered, the exemption is not available to you.
The Catch: Exempt Supplies and Lost Input VAT
Exemption sounds like good news, but it works differently from zero-rating. Because your supplies are exempt, you cannot recover input VAT on the costs linked to them — HMRC’s notice states this is not consistent with exemption. For an agency, that means VAT on software, marketing, premises and professional fees becomes a real cost rather than something you reclaim.
The concession also does not apply to umbrella companies supplying staff to a recruitment agency. It only covers the direct provision of staff. So where a nurse works through an umbrella, the umbrella charges your agency VAT on its invoice, but you may be unable to pass that VAT on to the NHS trust or recover it. This creates a genuine cash flow and margin problem that needs modelling before you agree rates, not after.
Outside the concession, for example some roles that do not meet the nursing definitions above, supplies of staff are generally standard-rated at 20%. Which treatment applies depends on the role and the setting, so check each placement type rather than applying one rule across the agency.
Umbrella Company Joint and Several Liability from April 2026
Healthcare agencies lean heavily on umbrella companies, which makes the 6 April 2026 reforms particularly relevant. Where an umbrella fails to account for PAYE and National Insurance, HMRC can pursue the recruitment agency, and potentially other parties in the supply chain, for the unpaid amount, plus interest and penalties. Commentators note there is no contractual workaround: a clause saying the umbrella is responsible does not remove your exposure, even if you have already paid the umbrella in full.
Practical steps to reduce that risk include robust due diligence on every umbrella you use, ongoing monitoring such as payslip audits and RTI checks, audit rights and termination clauses in your contracts, and keeping a clear record of the checks you carried out. For agencies with large nurse banks, this is balance sheet risk, not admin.
IR35 and Limited Company Clinicians
Some clinicians, particularly locum doctors, contract through their own limited companies. Where the off-payroll working rules apply, the end client normally decides employment status, unless that client is a small company, in which case the duty falls on the fee-payer, often your agency. A client is small if it meets at least two of: turnover under £15 million, balance sheet total under £7.5 million, and fewer than 50 employees. Many private clinics and care providers fall below these limits, which matters when you are deciding who carries the status risk.
Holiday Pay: It Is 12.07%, Not 12.7%
Agency workers accrue statutory holiday at 5.6 weeks a year. Where holiday pay is rolled up into the hourly rate, the figure is 12.07%, calculated as 5.6 weeks divided by the 46.4 weeks left after holiday. A frequent slip is quoting 12.7%, which overpays and distorts your margin on every shift. From April 2026, agencies must also keep holiday records for at least six years, so your payroll and bookkeeping need to retain this detail.
Compliance Costs to Price In
An Enhanced DBS check costs £49.50, and it is the level typically needed for roles with regular contact with patients or vulnerable adults. Add CQC registration and annual fees, NMC registration checks, and indemnity cover, and compliance becomes a material, recurring cost of every placement. Build these into your pricing model, and make sure each is coded correctly in your books so you can see true margin per worker.
Structuring Your Agency
Most healthcare agencies of any size trade through a limited company. Corporation Tax is 19% on profits up to £50,000, rising through marginal relief to 25% on profits over £250,000. Because VAT exemption restricts input tax recovery, and joint liability raises the stakes on documentation, accurate monthly management accounts matter more here than in most sectors.
Healthcare Recruitment Tax at a Glance
| Item | Detail |
|---|---|
| Nursing agencies VAT concession | Exempt for qualifying nurses, midwives and supervised auxiliaries (VAT Notice 701/57) |
| Condition for exemption | Agency registered with CQC or equivalent regulator |
| Umbrella company supplies | Not covered by the concession, VAT charged to the agency |
| Input VAT on related costs | Not recoverable on exempt supplies |
| Umbrella liability | From 6 April 2026, HMRC can pursue the agency for unpaid PAYE/NIC |
| Rolled-up holiday pay | 12.07% (5.6 weeks ÷ 46.4 weeks) |
| Enhanced DBS check | £49.50 |
| Corporation Tax | 19% up to £50,000, up to 25% over £250,000 |
Common Mistakes to Avoid
Charging VAT on Exempt Nursing Supplies
If you qualify under the concession, charging 20% VAT to an NHS trust overcharges the client and creates a correction headache.
Assuming the Concession Covers Every Healthcare Role
It is limited to the nursing categories in the notice. Other roles need their own VAT analysis.
Ignoring the Umbrella VAT Cash Flow Gap
Paying VAT to an umbrella while supplying exempt services leaves you out of pocket unless it is priced in.
Treating Umbrella Checks as One-Off
Under joint liability, an umbrella that was compliant last year is not guaranteed to be compliant now. Review them on an ongoing basis.
Frequently Asked Questions
Do nursing agencies charge VAT?
Not necessarily. Under the nursing agencies concession, supplies of qualifying nurses, midwives and supervised auxiliaries by a CQC-registered agency can be VAT-exempt.
Can we recover input VAT if our supplies are exempt?
Generally no. HMRC’s guidance says input tax on related costs cannot be recovered where the supply is exempt under the concession.
Are healthcare agencies liable for an umbrella company’s unpaid tax?
From 6 April 2026, HMRC can pursue the agency for unpaid PAYE and National Insurance, even where the contract says the umbrella is responsible.
What is the correct rolled-up holiday pay rate?
12.07% of pay, based on 5.6 weeks of statutory holiday over 46.4 working weeks.
Need an Accountant Who Understands Healthcare Recruitment? Talk to Filing Accounts UK
VAT exemption, umbrella liability and IR35 interact in ways that are easy to get wrong. At Filing Accounts, we help healthcare and nursing agencies set up their VAT treatment correctly, protect their margins, and stay ahead of the 2026 reforms.
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