The VAT treatment of GP locums has changed, with potential financial implications for practices and PCNs. Tax expert Christine Newitt explains more
Following a First Tier Tribunal decision, HM Revenue & Customs (HMRC) has issued an important update about the VAT treatment of locum doctors.
In December 2025, the ‘Isle of Wight NHS Trust and others v HMRC’ case concluded that the VAT exemption for the ‘provision of a deputy for a registered medical practitioner’ can apply to locum doctors supplied by employment businesses – not just GP out-of-hours or deputising services.
This directly contradicts HMRC’s long-standing view that agency-supplied locum doctors are always a standard-rated supply of staff (i.e that standard VAT applies). It has confirmed it will not appeal the decision and is reviewing its policy on the matter.
So, what does this mean? And what action should GP practices and PCNs take?
What has changed?
This U-turn from HMRC is particularly relevant for private healthcare providers and NHS bodies that rely on locum doctors, including GP practices and PCNs.
It represents a significant change to how supplies of locum doctors have historically been treated for VAT. Previously, where a locum doctor was supplied by an agency or employment business, the supply was treated as standard-rated for VAT (20%). Now, supplies may qualify for VAT exemption, depending on the contractual and factual position.
What are the immediate financial impacts?
For most GP practices and PCNs, VAT charged by locum agencies has been an irrecoverable cost for two reasons. The first is that core medical services are VAT exempt and the second is that most practices have little or no entitlement to recover input VAT.
However, if future locum supplies are treated as exempt, then VAT should no longer be charged and the gross cost of locum cover should reduce, assuming pricing remains consistent. This may represent a welcome cost saving in a landscape with significant financial pressures.
Will practices receive VAT refunds?
This is an important area to understand clearly. If VAT was historically charged incorrectly by the suppler to the practice, only the supplier – the agency or employment business – can submit a refund claim to HMRC and any repayment is made to the supplier, not directly to the GP practice or PCN. A practice can’t claim VAT back directly from HMRC because it didn’t pay it to HMRC – their bill was paid to the supplier, so can only make a claim from the supplier. A claim to recover incorrectly charged VAT can also only go back over four years.
Whether a practice benefits will depend on the contractual VAT clauses, whether the supplier refunds the VAT to the customer and whether HMRC can successfully challenge the supplier, that a position of unjust enrichment would arise if the VAT incorrectly charged was not repaid to the practice. Unjust enrichment is a defence by HMRC that aims to prevent a business gaining at the expense of other entities that actually bore the cost of the incorrectly charged VAT.
It is likely that the suppliers of locum doctors have charged the commercial rate for locum doctors and added VAT on top of this and not absorbed any amount within their pricing, but this is a consideration that will need to be made by HMRC if and when an agency puts in a claim.
For clarity, practices should now open discussions with their locum providers, review contractual wording regarding VAT adjustments and understand whether retrospective refunds are being pursued by the supplier. If they are making a claim, practices should be aware they can challenge any supplier that refuses to repay this VAT that has been overcharged to the practice.
How should repayment be treated?
Many GP practices will not be VAT registered and therefore wouldn’t have been able to recover VAT previously charged. In this situation, if the supplier makes an historic correction for the VAT overcharged and repays this to the practice, this is effectively a reduction in locum costs and no further considerations are required regarding VAT.
However, some practices are VAT registered – for example those with dispensing practices; those that operate pharmacies or have other private income streams; or those that are part of more complex VAT group or cost-sharing arrangements. In this case, practices will need to process the correction through their VAT returns, which could potentially result in an adjustment to their overall VAT recovery position.
What should be done now?
GP practices and PCNs should now review their current contracts to establish whether locum fees quoted are inclusive or exclusive of VAT, and whether contracts allow price variation if VAT treatment changes. They should also review ongoing invoices to see whether agencies are continuing to charge VAT and if they have confirmed a change in treatment.
Regarding retrospective claims, practices should find out whether their suppliers are submitting four-year error correction claims and whether any repayment will be passed on, as this is likely to vary between providers.
Most importantly, practices should not assume that all future locum supplies are automatically exempt, as the exemption depends on the precise contractual and factual position. The VAT exemption for the supply of locum doctors is governed by Value Added Tax Act 1994, Schedule 9, Group 7, Item 5, which exempts ‘the provision of a deputy for a person registered in the register of medical practitioners’. The individual must be registered in the register of medical practitioners and provide services that meet the criteria for medical care. VAT is very fact specific and therefore it is essential to consider who is provided and for what contractual purpose.
Practice managers should request written clarification from locum agencies on their VAT treatment and review whether any refunds may flow through to their organisation.
The VAT change to locum doctor supplies is a positive development but it comes with practical complexities. For many, the change may ultimately reduce the cost of locum cover going forward, but refunds are not automatic and the VAT consequences will differ from practice to practice. A proactive review now can ensure practices benefit where appropriate
Christine Newitt is head of VAT and tax director at Duncan & Toplis, which offers specialist tax services and supports GP practices with a range of VAT complexities
