If your recruitment agency supplies doctors, nurses, healthcare assistants or care workers, do you need to charge VAT?

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The answer is not always straightforward.

Recent tribunal decisions, together with an important change in HMRC's position on locum doctors, highlight why healthcare recruitment businesses need to consider exactly who they are supplying and what they are contractually supplying before deciding whether VAT should be charged.

The First-tier Tribunal decision in 1st Alternative Medical Staffing Ltd v HMRC [2025] UKFTT 1320 (TC) provides an important reminder that supplying healthcare professionals does not automatically mean that the recruitment agency itself is making an exempt supply of healthcare.

At the same time, HMRC has changed its position on certain supplies of GMC-registered locum doctors, which can now potentially qualify for VAT exemption.

For healthcare recruitment agencies, the distinction could be significant.

The 1st Alternative Medical Staffing case

1st Alternative Medical Staffing Ltd operated as an employment business supplying nurses and care assistants to hospitals and care homes.

The workers supplied by the agency used their professional skills to provide medical and care services to patients.

However, the important VAT question was not simply what the individual nurses and care assistants did.

The Tribunal had to consider the nature of the supply being made by the recruitment agency itself.

The hospitals and care homes receiving the workers were responsible for directing, supervising and controlling them.

1st Alternative argued that its supplies should qualify for VAT exemption under the healthcare provisions in Group 7, Schedule 9 of the VAT Act 1994, including on the basis that the services were closely connected with medical care.

The Tribunal rejected the company's argument and dismissed its appeal.

Supplying healthcare staff is not necessarily the same as supplying healthcare.‍

This is an important distinction for recruitment businesses.

A nurse working in a hospital may undoubtedly be providing medical care to a patient.

However, this does not automatically mean that the employment business which supplied that nurse is itself supplying medical care for VAT purposes.

The contractual arrangements need to be considered.

Where an agency's obligation is essentially to provide suitably qualified personnel and those workers then operate under the direction and control of the hospital, care home or other client, this points towards the agency supplying staff, rather than itself assuming responsibility for providing the underlying healthcare service.

This distinction can have a major impact on the VAT treatment.

What happened to 1st Alternative?

The First-tier Tribunal dismissed the company's appeal in November 2025.

1st Alternative subsequently sought permission to appeal.

In July 2026, the Upper Tribunal refused permission to appeal, meaning the First-tier Tribunal's decision remained standing.

The case therefore provides a useful warning to healthcare recruitment businesses against assuming that a supply becomes VAT exempt merely because the workers being supplied perform healthcare services.

But what about the Nursing Agencies Concession?

The position for nurses and certain nursing auxiliaries requires additional consideration because HMRC operates the Nursing Agencies Concession.

Under HMRC's current guidance, an employment business acting as principal may, subject to the relevant conditions, exempt supplies of certain nursing staff.

The concession can apply to supplies including certain:

• registered nurses and midwives providing medical care;
• unregistered nursing auxiliaries directly supervised by a qualified nurse or midwife; and
• nursing auxiliaries supplied to qualifying hospitals, hospices and nursing care homes where their services form part of the care provided to the patient.

The precise conditions of the concession therefore need to be considered before deciding whether VAT should be charged.

Healthcare recruitment agencies should not assume either that all nursing staff are VAT exempt or that all agency nursing supplies must be standard-rated.

Locum doctors: HMRC has changed its position

The VAT position becomes even more interesting when an agency supplies doctors.

Following the decision in Isle of Wight NHS Foundation Trust v HMRC [2025] UKFTT 1114 (TC), HMRC reconsidered its treatment of temporary medical staff.

HMRC published Revenue and Customs Brief 6 (2026) on 17 July 2026.

HMRC now accepts that supplies of GMC-registered locum doctors may qualify for VAT exemption, including where the locum doctor is supplied through an employment business.

The exemption arises under Item 5, Group 7, Schedule 9 VAT Act 1994, which provides an exemption for the provision of a deputy for a registered medical practitioner.

This represents an important change from HMRC's previous approach to locum doctor supplies.

The exemption does not apply to everyone registered with the GMC

Recruitment agencies should be careful about the scope of HMRC's announcement.

The exemption applies where the individual supplied is a registered medical practitioner performing a role which must be carried out by such a practitioner.

HMRC specifically states that its revised position does not extend generally to other healthcare professionals or general staffing services.

It also does not automatically cover other professionals simply because they may now be registered with the GMC.

Each category of worker therefore needs to be considered separately.

Why can doctors and nurses receive different VAT treatment?

The answer lies partly in the wording of the legislation.

The locum doctor position benefits from the specific exemption in Item 5 of Group 7 relating to the provision of a deputy for a registered medical practitioner.

That provision is different from the healthcare exemption considered in the 1st Alternative case.

This means that two recruitment agencies could both be supplying healthcare professionals to hospitals but potentially arrive at different VAT treatments depending on the workers supplied and the precise circumstances.

For example:

Locum doctors: supplies of qualifying GMC-registered locum doctors may fall within the statutory VAT exemption.

Nurses and nursing auxiliaries: the Nursing Agencies Concession may provide exemption where its specific conditions are satisfied.

Care workers and healthcare assistants: the VAT position depends upon the nature of the supply and the relevant exemption or concession. The fact that an individual works in the care sector does not, by itself, make the agency's supply VAT exempt.

This is why healthcare recruitment VAT needs to be considered worker-by-worker and contract-by-contract rather than applying one VAT treatment across the entire business.

Could medical recruitment agencies reclaim VAT from HMRC?

Potentially.

HMRC's revised position on locum doctors is particularly significant for recruitment agencies that have historically charged VAT on supplies of qualifying doctors.

HMRC states that a business may be able to recover output VAT previously overdeclared where:

• it made qualifying supplies of locum doctors;
• VAT was charged at the standard rate;
• those supplies should now be treated as exempt; and
• the supplies were made within the previous four years.

Only the person who made the supply and accounted for the output VAT can make the claim.

For an established medical recruitment agency, a four-year review could potentially identify a significant VAT repayment.

A VAT refund is not necessarily the VAT originally paid to HMRC

Businesses should exercise care before submitting a historic claim.

Changing supplies from taxable to exempt can also affect the agency's entitlement to recover VAT on its own costs.

A business may therefore need to revisit its input VAT recovery and partial exemption calculations.

HMRC has also confirmed that claims will be considered on a case-by-case basis and that it will consider unjust enrichment.

For example, where VAT was charged to an NHS trust or private healthcare provider, consideration may need to be given to who ultimately bore that VAT cost and whether amounts need to be reimbursed to customers.

The correct repayment figure may therefore be different from simply adding together the output VAT originally declared.

What should healthcare recruitment agencies do now?

Businesses supplying healthcare staff should consider reviewing both their current VAT treatment and historic VAT returns.

A sensible review should consider:

• which categories of healthcare professionals are supplied;
• whether the business supplies staff or assumes responsibility for delivering an underlying healthcare service;
• whether supplies of GMC-registered locum doctors qualify for the statutory exemption;
• whether supplies of nurses or nursing auxiliaries satisfy the Nursing Agencies Concession;
• whether other healthcare and care staff have been treated correctly;
• whether contracts and invoices reflect the actual nature of the supply;
• whether VAT has been overdeclared during the previous four years; and
• whether changing the VAT treatment creates partial exemption or input VAT adjustments.

Why getting the distinction right matters

VAT errors can become particularly expensive for recruitment agencies because turnover can be high while margins are comparatively small.

If an agency incorrectly fails to charge VAT, HMRC may subsequently seek VAT calculated by reference to the full consideration received rather than merely the agency's profit margin.

Conversely, unnecessarily charging VAT can make an agency less competitive where its healthcare customer is unable to recover all of the VAT.

Getting the VAT treatment right can therefore affect both tax compliance and commercial competitiveness.

How Fairfax Tax & Accounts can help

At Fairfax Tax & Accounts, we advise recruitment businesses, including agencies specialising in care and healthcare staffing.

We can help healthcare recruitment businesses review:

• the VAT treatment of doctors, nurses, carers and other healthcare workers;
• whether the Nursing Agencies Concession applies;
• whether locum doctor supplies qualify for exemption under HMRC's revised position;
• employment business contracts and the nature of the underlying supply;
• historic VAT returns and potential four-year repayment claims;
• partial exemption and input VAT implications; and
• VAT error corrections and correspondence with HMRC.

Have you charged VAT on locum doctors — or are you unsure whether VAT should be charged on your healthcare staff?

The recent tribunal decisions and HMRC's revised approach demonstrate that there is no single VAT answer for the healthcare recruitment sector.

If your agency supplies locum doctors, nurses, healthcare assistants, carers or a mixture of healthcare professionals, now may be a good time to review your VAT position.

Contact Fairfax Tax & Accounts to discuss a VAT review of your healthcare recruitment business.

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