HMRC updates the VAT treatment of the supply of locum doctors

In December 2025, HMRC issued a significant update to their VAT treatment of the supply of temporary medical staff. This followed the First Tier Tribunal decision in Isle of Wight NHS Trust v HMRC which confirmed that supplies of locum doctors can fall within the VAT exemption for “the provision of a deputy.” It was this decision that prompted HMRC to revise its long‑standing policy and therefore issue the update.

This shift has important financial and operational implications for NHS bodies, private healthcare providers, and employment businesses supplying medical staff. It creates an opportunity for some businesses to reclaim from HMRC, VAT amounts they previously declared on these supplies of these services.

Background

HMRC had historically interpreted the exemption in Item 5, Group 7, Schedule 9 of the VAT Act 1994, narrowly, applying it only to traditional deputising services such as GP out‑of‑hours cover. Their acceptance of the First Tier Tribunal’s finding that the exemption applies more broadly to the supply of locum doctors, including those provided by agencies, marks a major change in the VAT treatment of the supply of temporary medical staff (locum doctors). Therefore, supplies which were previously treated as standard‑rated may now fall within the VAT exemption.

Who it affects

HMRC’s revised position has important financial and operational implications for NHS bodies, private healthcare providers, and employment businesses and recruitment agencies supplying medical staff as well as VAT advisers supporting clients in the healthcare sector.

HMRC’s brief explicitly identifies these groups as those who should review the updated guidance and consider whether they have overdeclared VAT in the past four years.

What action should you take?

Organisations that have charged or paid VAT on supplies of locum doctors should now:

• Review past VAT returns to identify any overdeclared output tax.
• Submit refund claims for VAT charged in error, within the four‑year limit. HMRC confirms that suppliers can either adjust a current return or submit a formal claim for earlier periods.
• Engage with suppliers to ensure that future invoices reflect the correct VAT treatment.
• Assess financial impact, particularly for periods during the Covid‑19 pandemic when demand for locum staff was unusually high, potentially increasing the value of reclaimable VAT.
• Monitor further HMRC guidance, as HMRC has indicated that additional updates will follow.

Summary

The Tribunal’s decision and HMRC’s acceptance of it mark a major change in the VAT treatment of locum doctors. Supplies that were previously treated as standard‑rated may now fall within the VAT exemption for deputising services. NHS bodies, private healthcare providers, and employment businesses should act promptly to review historic VAT positions and submit refund claims where appropriate. With HMRC committed to revising its policy and issuing further guidance, organisations should stay alert to ongoing developments in this area.

For more information on this update or advice on how it may affect you and your business, contact us today or speak to someone from our VAT Team.