HMRC revises VAT exemption policy for NHS locum doctors

The business brief follows a First-tier Tribunal (FTT) decision in an appeal launched by the Isle of Wight NHS Trust against HMRC’s position that VAT exemption did not apply to the supply of locum medical practitioners.

The NHS Trust challenged HMRC’s decision that the supply of temporary medical staff – including locum doctors – should not be treated as VAT exempt. However, the tribunal ruled that Item 5, group 7, schedule 9 of the VAT Act 1994, which exempts “the provision of a deputy for a person registered in the register of medical practitioners”, does apply to the supply of temporary staff. 

Specifically, the FTT said that HMRC’s previous interpretation of the exemption had been too narrow as it was restricted to the supply of deputising services, such as GP out-of-hours service. The FTT ruled that locum doctors supplied by agencies should also qualify under Item 5, meaning that the VAT exemption should also apply to agency-supplied locums, not just direct medical services.

HMRC said in a brief following the ruling that it will not appeal the FTT’s decision and plans to revise its guidance accordingly, but did not publicly say it accepts the tribunal’s finding. The brief sets out the conditions for making a claim for overpaid VAT and outlines how suppliers, including recruitment agencies who previously charged VAT on locum doctors, can claim refunds or adjust past VAT returns for the last four years.

The paper says that eligible suppliers can either amend returns or use form VAT652 to request refunds. HMRC has also set up a specific email address for submitting the claims.

Pinsent Masons’ VAT expert Bryn Reynolds said HMRC’s revised position was “not a small policy tweak” and “could unlock substantial refunds” for NHS bodies, private hospitals, and agencies.

Reynolds said the change would have a significant impact on both agencies and NHS trusts, which will now be required to review input VAT adjustments and consider implications on partial exemption claims.

“The NHS bodies who have suffered increased costs as a result of the previous policy are not the entities that can adjust their VAT returns or make claims,” he said. “The output tax has been accounted for in prior VAT returns by the agencies supplying the staff. The relevant NHS bodies will doubtless want to encourage those suppliers to make the claims and then make adjustments under their contractual arrangements. This will likely represent an absolute cost to those suppliers as the partial exemption position needs to be considered. They will in turn be looking further up the chain to their suppliers.”

Reynolds said taxpayers should keep an eye out for revised guidance and that the ruling could even lead to a change in legislation.