HMRC has updated its position on the VAT treatment of locum doctors following a First-tier Tribunal decision in Isle of Wight NHS Trust v HMRC. Link here to the HMRC document

Until now, HMRC’s view was that locum doctors supplied through employment businesses were making a taxable supply of staff, subject to VAT at 20%. The tribunal disagreed and confirmed that the VAT exemption for medical deputies applies to the supply of locum doctors, including those provided via agencies.

HMRC has confirmed it will not appeal the decision and is reviewing its guidance to reflect this change. Updated guidance will be issued in due course.

Who’s Affected

This change may affect you if:

• You supply locum doctor services, either directly or through an employment business
• You have charged VAT at the standard rate on those services
• The supplies were made within the last four years

The change applies specifically to locum doctors in the first instance. It is to be hoped that future guidance will clarify the treatment of supplies of other medical staff, such as nurses or care assistants.

What You Can Do

If you have previously charged VAT on locum doctor supplies that should now be treated as VAT-exempt, you may be able to reclaim the overpaid VAT.

You can submit a claim if all of the following apply:

• You made a supply of locum doctors
• You charged VAT at the standard rate
• You now consider the supply should have been VAT-exempt
• The supply was made within the last four years

Only the business that made the supply and accounted for the VAT can submit a claim.

How to Make a Claim

Depending on the value of the claim, you can either:

• Adjust your next VAT return for the period in which the error is identified, or
• Submit an error correction notification to HMRC using form VAT652, following HMRC’s instructions

Claims may be subject to the unjust enrichment rules. In practice, this means HMRC may require evidence that any refunded VAT will be passed back to the customer who originally bore the cost.

Impact on Input VAT

Because these supplies are now treated as VAT-exempt rather than taxable, you will also need to review any input VAT you previously recovered on related costs.

This will include considering the partial exemption rules and whether any input VAT needs to be adjusted or repaid as part of the claim process.

Steve Chamberlain, National VAT Partner at bk plus, said “This is an important clarification for locum doctors and medical staffing businesses who may have overpaid VAT. While the opportunity to reclaim VAT is welcome, it’s vital to review each claim carefully and understand the wider impact on input tax recovery. Taking advice early can help avoid delays or challenges from HMRC.”

How We Can Help

If you think this change may affect you, we can:

• Review whether your locum supplies qualify for VAT exemption
• Assess potential VAT refund claims
• Prepare and submit claims
• Review the impact on input VAT and partial exemption
• Liaise with HMRC on your behalf

Contact us or Steve Chamberlain today