For years, agencies supplying locum doctors charged VAT at 20%. NHS trusts, private healthcare providers and GP practices paid it, and most of them could not get it back. It was a straightforward, and expensive, cost of hiring temporary medical staff.

That position has now changed. A tribunal has held that supplying locum doctors can be exempt from VAT, HMRC has decided not to appeal, and HMRC has published its settled policy. For anyone who supplies or hires locums, there is money at stake in both directions: VAT that should no longer be charged, and VAT already paid that may be recoverable.

What the Tribunal Decided

The case is Isle of Wight NHS Trust v HMRC, decided in September 2025. It was a test case, with twenty other appeals waiting behind it.

The argument turned on a single line in the VAT legislation, written in 1979, which exempts “the provision of a deputy for a person registered in the register of medical practitioners”. HMRC had long read that narrowly. Its case was that the exemption only covered old-style GP out-of-hours cover, and only where a locum stood in for a specific named doctor who was absent.

The Tribunal disagreed on every point. The wording Parliament chose was much wider than HMRC's reading, and the Tribunal was not prepared to narrow it after the fact.

Three practical conclusions came out of it:

  • The exemption is not limited to GPs. It covers doctors across any specialty.
  • It applies whether the locum covers a named absent doctor or fills a vacant post.
  • It applies where the locum comes through an agency, and not only where the doctor contracts directly.

Where HMRC Now Stands

HMRC set out its final position in Revenue and Customs Brief 6 (2026), published in July 2026.

HMRC now accepts that supplies of GMC-registered locum doctors can be exempt, including supplies made through an employment business.

The limits are worth knowing, because they are tighter than the headlines suggest. The exemption applies only where the person supplied is a registered doctor filling a role that has to be done by a registered doctor. It does not cover other healthcare staff. HMRC specifically names allied health professionals, physician associates and anaesthesia associates as falling outside it, even where they are GMC registered. General staffing supplies are outside it too.

So this is not a blanket exemption for medical recruitment. It is a specific one for doctors, and the role matters as much as the qualification.

What to Do Now

We supply locum doctors and have been charging VAT. What now?

Two things. Stop charging VAT on supplies that qualify, and consider a claim for the VAT you have already paid over to HMRC.

Only you can make that claim. The four-year cap applies, so the window is closing on the oldest periods.

Be aware of three complications before you submit anything. HMRC will not refund VAT that leaves you better off than you should be, so if you charged the VAT on to your client and have not refunded it, you will need to deal with that. Your own VAT recovery changes too, because supplies that were taxable are now exempt, which usually means giving back some of the input VAT you have reclaimed. HMRC pays the net figure, not the headline one. And it has said it may ask for supporting documents, so the paperwork needs to hold together.

We are an NHS trust or healthcare provider that paid this VAT. Can we claim it back?

Not from HMRC, no. This is the single most misunderstood part of the decision.

The claim against HMRC belongs to your supplier, because your supplier is the one who paid the VAT over. Your route is against the agency, under your contract with it, and whether that works depends on what the VAT clause in that contract actually says. Start there.

There is also a timing trap. For older periods, an agency's claim may already be out of time, which means your practical recovery could be shorter than four years even where the agency is willing to help.

We are a GP practice that paid VAT on locum cover. What can we do?

The same position applies, and commercially you are usually worst affected, because the VAT was a real cost you could not reclaim.

Approach the agency rather than HMRC. Be realistic about the timescale. The agency has to make its own claim, absorb its own VAT adjustment and satisfy HMRC before it can pass anything back to you.

Why It Is Worth Moving Now

HMRC's brief says this treatment applies “while current legislation remains in force”. That wording is deliberate.

The Tribunal's decision rested on the fact that Parliament wrote the exemption more widely than it needed to in 1979. There is nothing stopping Parliament rewriting it, and it could be done in a single line of a Finance Bill. There is a Budget on 28 October 2026.

Changes of that kind do not usually claw back the past. But nobody should assume this exemption reads the same way in a few years' time, and the four-year window is shortening every month regardless. This sits within our wider VAT advisory work.