The recent First-tier Tribunal ruling decision in Isle of Wight NHS Trust v HMRC [2025], confirmed in Revenue & Customs Brief 9/2025, has fundamentally changed the VAT treatment of locum doctor supplies — creating a significant VAT refund opportunity that has not been seen in over a decade.
With many locum agencies having overdeclared output VAT for up to four years and HMRC accepting the ruling and reviewing its policy, these supplies may now fall within the VAT exemption meaning agencies could reclaim substantial sums. However, the ruling also triggers complex risks around input VAT adjustments, interest charges and unjust enrichment.
Our partner and VAT specialist, Mark Ellis, provides a clear overview of what this ruling means for suppliers of temporary medical staff, including why agencies must act quickly to assess their VAT position, understand the risks, and secure expert support to protect and maximise their entitlement to VAT refunds.
Who is affected by the HMRC locum doctor VAT decision
This update is directly relevant to any organisation involved in supplying temporary medical staff or clinical staff, including:
- Locum doctor agencies
- Medical staffing suppliers and employment businesses
- Agencies supplying doctors to NHS Trusts, GP practices, or private healthcare providers
- Businesses providing doctors as substitutes or deputies for registered medical practitioners
Why HMRC Brief 9/2025 and the Tribunal ruling matter for locum doctor suppliers
The Tribunal held that supplies of locum doctors fall within the VAT exemption for “the provision of a deputy for a person registered in the register of medical practitioners” under Item 5, Group 7, Schedule 9 VATA 1994. Crucially, the Tribunal confirmed that the VAT exemption applies even when locum doctors are supplied through employment businesses, not only when covering a specific named individual.
HMRC confirmed in Revenue & Customs Brief 9/2025 that it will not appeal the decision and has acknowledged that many suppliers will have overdeclared output VAT in the past four years.
What risks locum doctor suppliers need to consider
However, HMRC’s Brief explicitly warns suppliers to consider the impact on past input VAT recovery on expenditure when making output VAT refund claims in respect of income. So, the shift also triggers:
- Irrecoverable input VAT on costs associated with exempt supplies over the same four‑year period
- Interest potentially payable to HMRC (at rates of up to 8%) on that input VAT incorrectly reclaimed.
For many suppliers, this may create a net VAT cost relating to historic periods unless skilfully managed.
How locum doctor suppliers can retain output VAT refunds and why specialist support is essential
Although input VAT and interest payments to HMRC may create a financial burden, the Tribunal decision opens the door to significant retrospective output VAT refunds which should be substantially higher than the associated irrecoverable input VAT. The key challenge is ‘unjust enrichment’. HMRC will only repay output VAT if the supplier can demonstrate that the supplier’s output VAT cost was not passed on to its customers. HMRC emphasises that it will not refund output VAT repayment claims that would lead to unjust enrichment of the supplier.
This is where expert VAT analysis becomes vital. It may be possible to negotiate with HMRC that you, the supplier, are entitled to retain some or all of the output VAT refund, rather than being forced to pass it on to customers depending on:
- the specific contractual terms with customers,
- pricing methodology used when supplying locums, and
- evidence showing that customers treated VAT as an irrecoverable cost, typically funded out of government grant allocations for medical services.
This is a complex technical and evidential exercise — one that requires a VAT specialist with experience of such VAT claim issues and strong HMRC negotiation skills – including contract reviews, VAT technical analysis, pricing evidence assessments and HMRC negotiations.
Conclusion: What locum doctor suppliers should do next
The combined effect of the Tribunal’s judgment and Revenue & Customs Brief 9/2025 represents both a risk and an opportunity for locum doctor suppliers. While there is an unavoidable exposure relating to irrecoverable input VAT that, with the benefit of hindsight, was incorrectly reclaimed over the past four years and now needs to be paid back to HMRC potentially with interest thereon, there is also a realistic prospect — where expertly supported — of securing and retaining significant output VAT refunds for the past four years.
How can we help
We are already advising clients on these issues and can help you navigate this new landscape with clarity, confidence and a strong HMRC‑facing strategy. If you’d like to discuss your organisation’s position or explore potential VAT recovery, please contact Mark Ellis.
