Diagnosing VAT and the supply of Locum Doctors: Isle of Wight NHS Trust v HMRC

Under UK VAT legislation, any supply within the scope of VAT is, by default, subject to VAT at the standard rate, unless it qualifies for a specific exception, i.e. as being zero-rated, reduced-rated or VAT exempt. HMRC’s view has always been that the supply of locum doctors does not fall into one of these exceptions and, therefore, is liable to VAT at the standard rate.

However, this position has been challenged for several years. Many in the healthcare sector have interpreted the VAT exemption for health and welfare services as extending to supplies of locum doctors, specifically under the provision of the “supply of a deputy for a person registered in the register of medical practitioners.”

HMRC has consistently disputed this interpretation, arguing that the UK legislation was not aligned with the underlying EU VAT Directive, or that this note in the exemption only applied to the provision of a deputy for a specified GP, and, therefore, the exemption doesn’t apply.

Tribunal decision in the Isle of White NHS Trust vs HMRC

The Isle of White NHS Trust (the NHS Trust) took this dispute to the First-tier Tribunal (FTT) and the FTT has now ruled in favour of the NHS Trust, concluding that the wording of the UK legislation should be taken at face value. As a result, the supply of locum doctors in this case was found to be VAT exempt, and the NHS Trust’s appeal was successful.

This case has been designated as a lead case, meaning it could influence the outcome of similar disputes between HMRC and healthcare providers. However, it’s important to note that:

• As an FTT decision, it’s currently limited to the parties involved.
• HMRC may appeal, so the matter is not yet definitively settled.

Nevertheless, this is a potentially significant and influential decision. As such, affected parties must take quick action to assess its impact.

Practical implications

This ruling could have significant implications for those operating in the health care industry and staffing agencies. Any parties involved in the supply or receipt of locum doctor services should consider taking the following steps:

• Review historical VAT treatment of locum doctor services to assess whether VAT was correctly charged or incurred. There may be scope to reclaim VAT that was historically overcharged or incorrectly incurred, provided this is done in line with the usual rules (such as the four-year time limit for correcting VAT errors).
• Evaluate future VAT positions, especially where locum services are supplied under similar arrangements. This may help reduce irrecoverable VAT in your supply chain going forward.

That said, as mentioned above, this is only an FTT decision at this stage, so there still may be further Tribunal action on this in the coming months and years.