Following the decision in the VAT litigation of Isle of Wight NHS Trust, HMRC is now inviting businesses that have charged VAT on providing locum doctors in the last four years to apply for VAT reclaims.  The decision, opportunity, and suggested next steps are summarised below.  

Decision

HMRC previously argued that VAT exemption was restricted to the supply of deputising services, like the GP out of hours service and, therefore, that supplies of temporary staff by employment businesses should be subject to the standard rate of VAT.

The First Tier Tribunal in Isle of Wight NHS Trust v HMRC [2025] UKFTT 1114 (TC) disagreed with HMRC’s position.

It found that the VAT exemption applied to supplies of staff, not just the supply of medical care. It also found that the exemption applied to locum doctors, including those provided by employment businesses and was therefore not limited to out of hours GP cover.

VAT opportunity

HMRC has not appealed against this decision and is now reviewing its policy in this area. Further, it has invited applications for VAT refunds for businesses, which supplied locum doctors that satisfy all the following conditions.

HMRC claim conditions

1. The business made supplies of locum doctors;
2. Charged VAT at the standard rate;
3. Which should have qualified for exemption based on the principles in Isle of Wight NHS;
4. Within the last 4 years

Depending on the amount of overdeclared VAT, businesses can either:

• Adjust VAT returns to reclaim the VAT retrospectively; or
• Claim a refund by making an error correction notification

Next steps

To make such claims to HMRC directly, it will require business to:

1. Set out the basis of, and the reasons for, claims;
2. Show the amount being claimed on a VAT period-by-period basis;
3. Demonstrate how the claim value was calculated;
4. Provide copies of relevant documentation; and
5. Calculate the possible effect on recovered input tax (i.e., the extent to which making additional exempt supplies means VAT on costs should be restricted further). This includes considering how the rules on partial exemption may affect claimants.

This final point requires consideration whether claims are made. HMRC could now argue all businesses which supplied locum doctors that qualified for exemption should be required to, in principle at least, restrict VAT incurred on costs.  

Get in touch

Our VAT team can assist you to determine the extent to which you qualify to make a claim, calculate its value in line with HMRC’s expectations, confirm which method should be used to make the claim, and submit claims to HMRC. Please don't hesitate to get in touch with me to discuss this opportunity.