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Medical recruitment agencies and healthcare staffing businesses should review how they account for VAT on supplies of locum doctors following an important change in HMRC's position.‍

HMRC published Revenue and Customs Brief 6 (2026) on 17 July 2026, following the First-tier Tribunal decision in Isle of Wight NHS Foundation Trust v HMRC [2025] UKFTT 1114 (TC).

The change could have significant consequences for recruitment agencies supplying locum doctors to NHS bodies and private healthcare providers.

Importantly, businesses that have historically charged VAT on qualifying supplies may also have an opportunity to recover VAT overdeclared during the previous four years.

What has changed?

Historically, employment businesses supplying temporary medical staff have often treated their supplies as taxable staffing services and charged VAT at the standard rate.

However, HMRC has now reconsidered its position following the Isle of Wight NHS Foundation Trust case.

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

The relevant exemption is contained in 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.”

This represents an important development for businesses operating within the medical recruitment sector.

When can the VAT exemption apply?

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The exemption is not a general exemption for supplying healthcare workers.

HMRC's revised position specifically concerns supplies of GMC-registered locum doctors.

For the exemption to apply, the individual supplied must be a registered medical practitioner who is performing a role that must be carried out by such a practitioner.

Therefore, recruitment agencies need to consider the nature of each supply rather than simply assuming that all healthcare staffing is VAT exempt.

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What about nurses, carers and other healthcare professionals?

This distinction is particularly important.

HMRC has specifically stated that its revised position does not extend to supplies of other healthcare professionals or general staffing services.

The VAT treatment of supplies involving:

• nurses;
• healthcare assistants;
• carers;
• allied health professionals;
• physician associates; and
• other temporary healthcare workers

must therefore be considered separately.

Being involved in healthcare does not automatically make a staffing supply exempt from VAT.

The contractual arrangements and the nature of what the recruitment business is actually supplying remain important.

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Could recruitment agencies reclaim VAT previously paid to HMRC?

Potentially, yes.

A recruitment or employment business may be able to claim a refund of VAT previously overdeclared where:

• it supplied qualifying locum doctors;
• it charged VAT at the standard rate;
• it now considers that those supplies should have been exempt; and
• the VAT relates to supplies made within the previous four years.

Crucially, HMRC states that only the person who made the supply and charged the output VAT can make the claim.

This means medical recruitment agencies that have historically charged VAT on locum doctor placements should consider reviewing their previous VAT returns.

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A four-year VAT review could be worthwhile

For recruitment businesses with significant locum doctor turnover, the amounts involved could be substantial.

For example, an agency that has made £1 million of qualifying locum doctor supplies each year could potentially have accounted for significant amounts of output VAT over a four-year period.

However, businesses should not simply calculate the VAT previously paid and submit a repayment claim.

A number of additional issues need to be considered.

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Unjust enrichment

HMRC has made it clear that it will not make a repayment where doing so would result in the claimant being unjustly enriched.

This is particularly relevant where the recruitment agency charged VAT to an NHS trust, hospital or other healthcare provider and that customer paid the VAT.

The agency will therefore need to consider issues including:

• who ultimately bore the cost of the VAT;
• whether customers recovered the VAT;
• whether credit notes or reimbursements may be required;
• the contractual arrangements with customers; and
• how any repayment should flow through the supply chain.

A VAT repayment claim should therefore be considered carefully before being submitted.

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Don't forget input VAT and partial exemption

There is another important consequence of treating historical supplies as exempt.

If supplies previously treated as taxable are subsequently treated as exempt, this can affect the recruitment agency's entitlement to recover VAT on its own costs.

Businesses may therefore need to reconsider the input VAT previously recovered and the application of the VAT partial exemption rules.

HMRC specifically states that businesses should take this into account and that claims should be made on a net basis where appropriate.

This means the potential repayment is not necessarily simply the amount of output VAT historically declared.

How are claims made?

Depending upon the amount involved and the normal VAT error-correction rules, businesses may be able either to:

• make an adjustment through a VAT return; or
• submit a formal error correction notification to HMRC.

For relevant error correction notifications, HMRC has instructed businesses to use form VAT652 and provide details explaining:

• the basis of the claim;
• why the VAT was overdeclared;
• the amount being claimed;
• how the amount has been calculated; and
• a breakdown by VAT accounting period.

HMRC may also request supporting documentation and has confirmed that claims will be reviewed on a case-by-case basis.

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What should medical recruitment agencies do now?

Recruitment agencies supplying locum doctors should consider carrying out a VAT review covering both their current arrangements and the previous four years.

The review should identify the categories of medical staff supplied, establish which workers were GMC-registered locum doctors, review the contracts and actual nature of the supplies, quantify output VAT potentially overdeclared and consider the corresponding impact on input VAT and partial exemption.

Businesses should also consider the commercial implications for customers before making any repayment claim.

It is particularly important not to assume that the HMRC announcement means all supplies of temporary healthcare staff are now VAT exempt. The revised treatment is considerably narrower.

How Fairfax Tax & Accounts can help medical recruitment businesses

At Fairfax Tax & Accounts, we work with recruitment businesses, including agencies specialising in the supply of care and healthcare staff.

VAT within the recruitment sector can be particularly complex because the VAT treatment can depend on the precise nature of the service being supplied, the contractual arrangements and the professional status and role of the worker.

Following HMRC's change of position, we can assist medical recruitment businesses with:

• reviewing the VAT treatment of locum doctor supplies;
• reviewing historic VAT returns for potential overpayments;
• calculating potential four-year VAT repayment claims;
• considering unjust enrichment and customer reimbursement issues;
• assessing input VAT and partial exemption implications;
• preparing VAT error correction calculations and submissions; and
• reviewing the VAT treatment of other healthcare staffing arrangements.

Have you supplied locum doctors and charged VAT?

If your recruitment agency has supplied GMC-registered locum doctors and charged VAT, it may be worth reviewing the previous four years.

Equally, if your business supplies a mixture of doctors, nurses, carers and other healthcare professionals, obtaining advice on the correct VAT treatment can help reduce the risk of VAT being incorrectly charged — or incorrectly treated as exempt.

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