New HMRC Guidance: VAT Exemption Now Applies to Locum Doctors and Temporary Medical Staff

If your healthcare business supplies temporary medical staff or locum doctors, there's important news that could significantly impact your VAT position and potentially unlock substantial refunds. HMRC has updated its stance on VAT treatment of temporary medical staff following the landmark First-tier Tribunal decision in Isle of Wight NHS Trust v HMRC, fundamentally changing how these supplies are treated.

For GP practices, NHS trusts, private hospitals, and healthcare recruitment agencies across Bolton, Manchester, and the wider UK, this policy shift represents both an opportunity and a compliance obligation demanding immediate attention.

What Has Changed?

HMRC previously maintained that VAT exemption for medical deputies applied only to traditional GP out-of-hours cover, treating supplies of temporary staff by employment businesses as taxable at 20%. The tribunal disagreed, ruling that the exemption applies to medical practitioners supplied as deputies to fill vacant posts normally held by registered doctors making these supplies exempt from VAT.

HMRC has accepted this decision and is reviewing its policy, with detailed guidance expected soon. This affects healthcare recruitment agencies, NHS trusts, GP practices, and private hospitals that engage locum doctors for designated medical roles.

Understanding the VAT Exemption

Under Item 5, Group 7, Schedule 9 of the VAT Act 1994, providing a deputy for a registered medical practitioner is VAT-exempt. The tribunal expanded this definition beyond GP cover to include locum doctors filling any designated role normally held by a registered doctor—potentially covering hospital consultants, specialists, and surgeons supplied temporarily.

Importantly, this exemption applies specifically to registered medical practitioners, not automatically extending to nurses or allied health professionals unless covered by separate provisions in HMRC's Health Professionals guidance.

How to Claim VAT Refunds

Businesses that charged 20% VAT on locum doctor supplies within the last four years may claim refunds. Only the business that made the supply and charged output tax can claim. Depending on the amount, you can adjust your current VAT return or submit form VAT652 to HMRC with "Locum doctors claim RCB 9/25" in the subject line.

Critical Considerations Before Claiming

Don't rush into claiming without understanding the full implications. Supplies now treated as exempt affect your input tax recovery. If you've recovered VAT on costs associated with these supplies' recruitment, advertising, or staff costs those recoveries may need reversing because exempt supplies don't allow full input tax recovery.

For businesses making both taxable and exempt supplies, this shift could significantly impact partial exemption calculations, affecting your ability to recover VAT on overheads. HMRC will also consider unjust enrichment if you passed the VAT cost to customers and were reimbursed, you may not be entitled to a refund.

Successful claims require comprehensive documentation including original invoices, contracts demonstrating supply nature, evidence of who bore the VAT burden, revised partial exemption calculations, and proof that supplied individuals were registered medical practitioners.

Practical Steps for Healthcare Businesses

Review historical supplies from the past four years, assess your current position, and calculate the net impact including input tax adjustments. Consider partial exemption implications and gather supporting documentation before submitting claims. The complexity of these calculations means specialist VAT advice is essential.

Why Specialist Healthcare Accounting Matters

VAT in healthcare has always been complex, with different rules for medical services, pharmaceutical supplies, and staffing arrangements. This change adds another layer requiring specialist knowledge. At YRF Accountants, our Healthcare Accounting and Financial Services team specializes in supporting GP practices, private hospitals, and healthcare recruitment agencies across Bolton, Manchester, and the UK.

Need expert guidance on locum doctor VAT rules? Contact YRF Accountants today. Our healthcare specialists can review your historical supplies, calculate your net refund position, prepare your HMRC claim, and ensure ongoing compliance while you focus on delivering excellent patient care.