The VAT Treatment of Supplies (By Agencies) of Locum Doctors
HM Revenue and Customs (HMRC) has clarified the VAT treatment of locum doctors supplied by agencies following a First-tier Tribunal (FTT) decision and the publication of Revenue and Customs Brief 9 (2025). The clarification represents a departure from HMRC’s previous approach and has direct consequences for recruitment agencies, NHS bodies and private healthcare providers that have historically treated these supplies as standard-rated for VAT purposes.
Background to the change
The clarification stems from an appeal brought by the Isle of Wight NHS Trust, which challenged HMRC’s long-standing position that VAT exemption did not apply to agency-supplied locum doctors. HMRC had maintained that the exemption for deputising services was narrowly defined and largely limited to specific arrangements, such as GP out-of-hours services.
The tribunal considered Item 5, Group 7, Schedule 9 of the VAT Act 1994, which provides VAT exemption for “the provision of a deputy for a person registered in the register of medical practitioners”. The FTT concluded that HMRC’s interpretation of this provision was overly restrictive and that the legislation does not limit the exemption to particular types of deputising services.
Tribunal findings and scope of the exemption
The FTT ruled that locum doctors supplied by agencies can fall within the scope of Item 5, provided the conditions of the exemption are met. The decision confirmed that the exemption is capable of applying to agency-supplied locums and is not confined to services supplied directly by medical practitioners or to specific clinical settings.
This interpretation significantly widens the potential application of the exemption and overturns HMRC’s previous view that such supplies should generally be treated as taxable at the standard rate.
HMRC’s current position
Following the tribunal decision, HMRC confirmed that it will not appeal the ruling. In Revenue and Customs Brief 9 (2025), HMRC set out its approach to the VAT liability of supplies of locum doctors and how it will handle claims for VAT previously charged.
HMRC has also stated that it intends to revise its published guidance to reflect the tribunal’s findings, although it has not expressly stated that it accepts the tribunal’s reasoning in full. Further guidance is expected in due course.
VAT exemption and reclaiming overpaid VAT
As a result of the decision, supplies of locum doctors by agencies may qualify for VAT exemption where the conditions of Item 5 are satisfied. Agencies that previously charged VAT on these supplies may be entitled to reclaim overpaid VAT going back up to four years.
Claims must be made by the entity that accounted for the output VAT, which will usually be the recruitment agency or employment business supplying the locums. Claims can be submitted by amending earlier VAT returns or by using the VAT652 error correction process. HMRC requires claims to be supported by detailed calculations, broken down by VAT period, together with appropriate evidence. Businesses that have paid VAT on relevant supplies should therefore approach the agency that made the supply in order to ensure that a claim is lodged on its behalf.
HMRC has also made it clear that it will not repay VAT where doing so would result in unjust enrichment. Agencies may therefore need to demonstrate how any repayment will be passed back to customers that bore the VAT cost.
Impact on input VAT and partial exemption
A change in the VAT liability of supplies from taxable to exempt has implications for input VAT recovery. Agencies must review whether input VAT previously recovered remains recoverable in light of the revised treatment of their supplies.
Where agencies make a mix of taxable and exempt supplies, partial exemption calculations may need to be revisited. Input VAT that was previously recovered on the assumption that locum supplies were taxable may need adjustment where those costs relate to exempt supplies.
Practical considerations for agencies and healthcare providers
NHS bodies and private healthcare providers cannot reclaim VAT directly, as the VAT was accounted for by the supplying agencies. This may lead to contractual discussions between agencies and their customers regarding the recovery and repayment of VAT that was previously charged.
Agencies should also consider the administrative burden of preparing claims, reviewing historic VAT positions and managing HMRC correspondence. HMRC has indicated that it is reviewing the wider policy position and that further updates are likely.
How The VAT People can help
The VAT People provides specialist VAT advice to recruitment agencies, NHS bodies and private healthcare providers dealing with the VAT treatment of locum doctor supplies. This includes reviewing the VAT liability of supplies, assessing entitlement to VAT exemption, identifying opportunities to reclaim overpaid VAT and managing the technical implications for input VAT recovery and partial exemption.
With almost 30 years in practice and senior advisers who bring extensive HMRC and consultancy experience, The VAT People understands how HMRC applies VAT law in practice and how claims are assessed. The team supports clients through the full process - from analysing historic VAT positions and preparing robust repayment claims, to managing HMRC correspondence and addressing any follow-up queries or challenges.
Where reclassification of supplies affects input VAT recovery, The VAT People can review partial exemption calculations, quantify any adjustments required and advise on the most appropriate approach based on your wider VAT position. The focus is on accuracy, defensible positions and practical outcomes that align with HMRC’s current approach.
To discuss your circumstances and obtain specialist VAT advice, contact The VAT People on 0161 477 6600 or fill out an online contact form and speak to a VAT specialist.