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NHS Trusts in England accused of avoiding tax

There's a bill of more than £1 billion for temporary workers in the NHS and normal rules dictate a big chunk of that goes on VAT.

At 20% that is an extremely significant cost to the health service at a time when they are trying to make very big savings, even though their budget is ring-fenced from the wider government cuts.

But we’ve seen evidence that many trusts are managing to lop off some of that tax.

As in other very well documented cases like the tax affairs of Google and Amazon, there is nothing illegal about what is going on, but there are fears in the sector about the ethics of the scheme, and the potential consequences.

NHS guidance clearly states that public bodies should not enter into any schemes where the primary aim is to cut a tax bill. Tonight, the taxman is to investigate exactly what is going on.

It works like this. Traditionally a hospital would pay an agency for a locum doctor - £1,000 for example and then VAT on top, at £200.

Under the new model, the trust would take on a locum or a physiotherapist perhaps, as if they were a permanent member of staff, but they would be taken on like this even for a couple of shifts or weeks, then their contract terminated.

Or they employ them through what is known as a ‘personal service company'. That kind of company has already been attacked by MP s concerned about the propriety of public servants using them.

Critically under both of those models, no VAT is paid.

We showed it to the senior MP who has spent months highlighting tax loopholes.

Margaret Hodge, the chair of the Public Accounts Committee, told us: ‘It is completely unacceptable for a publicly funded body to deliberately set about avoiding a fair tax due…it is simply wrong. And I bet you on this the 20% they save on VAT, doesn’t go back into the NHS, I bet a great dollop of it goes into the pockets of the accounts."

She said her committee will look at the schemes, and with NHS trust budgets under pressure she said, "I understand why they’re tempted, but they are wrong.”

We have been told more than 30 trusts in England are using these schemes – Sherwood Forest, Guys and St Thomas, Avon and Wiltshire, Maidstone and Tunbridge Wells, East Lancashire, and Queen Elizabeth King’s Lynn have admitted to us that they have started using the model.

Internal documents show one of them, Sherwood Trust, boasting about savings they have made, saying by "implementing the PwC VAT Liaison Model, commonly referred to as a VAT avoidance scheme….because the shift was covered by an employee or by a limited company the trust is not liable for VAT…there is an estimated saving to the Trust of £250,000."

Internal documents show one of them, Sherwood Trust, boasting about savings they have made.

PwC, the firm behind that particular scheme, insists it is about overall efficiency, not avoiding tax.

But Kevin Green, from the Recruitment and Employers Confederation told me: "We can’t see any benefit to the NHS other than avoiding VAT."

And it is not just about the money. Sources in the industry have real fears about the wider consequences of more and more trusts signing up.

We’ve been told that "suppliers are getting bullied into doing this" and the firms selling the service are behaving like "second hand car salesmen."

One agency said that contracts start and stop so often so often that "a lot of their doctors have 200 P45s".

Some medical staff on their books even fear that it could have an effect on patient care. As some traditional agencies don’t want to sign up to these schemes those running the services are looking elsewhere.

One agency representative told me they feared that trusts were being sent "cheap alternative doctors" who may not have been as carefully checked as normal.

So HMRC has now told ITV News that they will investigate, and although the accountancy firms have told us they believe the schemes are fine, that appears to clash with HMRC’s statement.

They have told us:

HMRC is aware of this issue and we are actively looking into it to ensure the right tax is paid. A placement for a period of one or a few shifts is clearly not consistent with a contract of employment but, rather, a supply of staff by the agency, liable to VAT in full.

NHS Trusts can either employ people and assume the responsibilities that go with that or use agency staff and incur VAT in full. That choice is for NHS managers but the VAT rules are clear.

– HMRC Spokesperson

None of the trusts which use the scheme wanted to do an interview, but the NHS Confederation which represents them said:

These tax schemes can be complex, and because of this, we have asked the for Treasury to provide clarity to NHS organisations on the implications of using them so they can plan budgets and ensure as much as possible is spent on patient care.

We hope they will be able to do this as soon as possible.

Because this scheme is relatively new it would always be advised for NHS organisations to seek professional advice before proceeding with it to ensure it is not going against best practice.

– NHS Confederation spokesperson

When the government has recently made such play of cracking down on tax avoidance in the private sector, it is extremely tricky for any such schemes to become prevalent when public money is at stake.