VAT changes for locum doctors: What medical recruiters need to know

For many years, the VAT treatment of medical recruitment agencies supplying locum doctors and other temporary medical staff has been relatively clear, with services typically subject to the standard VAT rate (20%).

However, following HMRC’s update in December 2025, uncertainty has emerged across the sector, leaving agencies and healthcare providers questioning how supplies should now be treated.

In this blog, we break down the key questions we’re hearing from clients and explain what the latest VAT developments could mean in practice.

It’s important to note that the VAT treatment in this area is still evolving and HMRC has not yet issued definitive go-forward guidance. Please take specialist advice before making any decisions.

 

WHAT CHANGED FOR MEDICAL RECRUITERS

The First-tier Tribunal ruled in the Isle of Wight NHS Trust case that supplying GMC-registered doctors through a recruitment agency is VAT exempt under UK law – a direct contradiction of HMRC’s long-standing policy.

Crucially, HMRC chose not to appeal, which is generally taken as acceptance of the tribunal’s findings.

WHAT HAS HMRC ACTUALLY SAID?

Following the tribunal, HMRC published Revenue & Customs Brief 9 (2025), inviting businesses to submit claims for VAT potentially charged in error. However, the brief is notably vague, lacking clear guidance for locum doctor recruitment agencies going forward.

HMRC is understood to be “not insisting” that exemption applies, but the phrasing leaves most of the sector none the wiser. Representative bodies APSCo and REC are pressing for clearer guidance.

DOES THIS AFFECT ALL TEMPORARY MEDICAL STAFF?

No – The exemption is understood to apply specifically to GMC-registered doctors. The GMC register also includes physician associates (PAs) and anaesthesia associates (AAs), who may be in scope.

Other allied health professionals are not currently considered to fall within the exemption.

 

DOES IT APPLY TO PERMANENT PLACEMENT FEES?

No – HMRC’s confirmed that the case doesn’t affect its policy on permanent placement fees or direct engagement (margin-only) arrangements. The issue is specific to the supply of temporary staff.

 

DOES IT ONLY AFFECT RECRUITMENT AGENCIES?

No – the tribunal ruling wasn’t limited to agencies only. It may be relevant for any organisation in the supply chain, including subcontracted agencies, other healthcare providers, personal service companies, and umbrella companies.

 

Commercial impact

WHAT DOES THIS MEAN FOR VAT RECOVERY?

This is the most significant commercial risk. If supplies of locum doctors are treated as exempt, you lose the ability to reclaim VAT on costs associated with those supplies — most notably the VAT on umbrella company or outsourced payroll invoices you’ve likely been recovering.

To illustrate the scale: on a £37.50 gross margin placement, losing the ability to reclaim £30 of VAT on costs reduces that margin to £7.50.

For many businesses, the current operating model becomes unviable without changes to pricing or structure.

 

CAN WE NET OFF THE VAT WE OWE AGAINST ANY REFUNDS TO CLIENTS?

It’s unlikely. UK law contains restrictive provisions that make offsetting the two difficult. Repaying output VAT to clients and restricting your own input VAT recovery are likely to be treated as separate matters.

 

Historic claims

OUR CLIENTS HAVEN’T ASKED US FOR ANYTHING – DO WE STILL NEED TO ACT?

It’s worth considering. Submitting a claim proactively helps protect against a contractual claim from clients later on the basis that you overcharged them. A single global claim, covering all clients, is generally simpler to administer than individual ones.

 

ARE HMRC PROCESSING CLAIMS NOW?

Not yet. Claims are being logged, but HMRC have indicated they will process them once a firmer policy position is established.

 

AN NHS TRUST IS ASKING US TO REPAY HISTORIC VAT. WHAT SHOULD WE DO?

Don’t agree to anything quickly. Repaying output VAT triggers corresponding adjustments on your own VAT returns, including potential restrictions on input VAT you’ve already recovered. Before responding, you need to understand the contractual basis of the request, the full financial impact, and how any repayment would be funded. Take advice first.

 

Going forward

SHOULD WE STOP CHARGING VAT ON LOCUM DOCTOR PLACEMENTS NOW?

Not without taking advice first. The correct VAT treatment depends on the specific facts of what is being supplied, how your contracts are structured, and whether your arrangements fall within the exemption being discussed. A blanket change without a thorough review could create larger problems.

 

IF EXEMPTION APPLIES, HOW DO WE MANAGE THE EXTRA COST?

Open dialogue with NHS Trust and healthcare clients is important. Some will be sympathetic and may agree revised commercial terms that reflect the changed position. Any revised arrangements will need to comply with unjust enrichment rules.

 

Is moving away from umbrella companies a viable option?

Some businesses are exploring direct employment of locum doctors as a way of removing VAT from the cost base altogether.

It’s a legitimate route, but it carries significant operational, commercial, and employment law implications and needs to be considered carefully before any decision is made.

 

WHERE THINGS STAND FOR VAT AND LOCUM DOCTORS

There is no definitive answer yet. HMRC’s guidance remains unclear, and the right approach for your business will depend on how your contracts are structured, who sits in your supply chain, and what your cost base looks like.

What is clear is that this issue has real commercial consequences and needs to be treated as a priority. We are actively monitoring developments and will update clients as the position firms up.

 

To understand your VAT exposure for locum doctors, map your supply chain, and assess the financial impact on your business, get in touch with our specialist recruitment team.

 

FAQs

What are the VAT changes for locum doctors?
A tribunal decision involving the Isle of Wight NHS Trust found that the supply of GMC-registered locum doctors through recruitment agencies may qualify for VAT exemption. HMRC subsequently issued guidance acknowledging the decision, creating uncertainty around how certain medical staffing supplies should be treated going forward.

Does the VAT exemption apply to all temporary medical staff?
No. Based on current understanding*, the exemption applies specifically to GMC-registered doctors. It may also extend to physician associates (PAs) and anaesthesia associates (AAs).

Do medical recruitment agencies still need to charge VAT?
There is currently no one-size-fits-all answer. The VAT treatment depends on factors such as what is being supplied, the contractual arrangements, and whether the supply falls within the scope of the exemption. Recruitment agencies should seek specialist advice before changing their VAT treatment.

Can medical recruitment agencies reclaim VAT charged in previous years?
Businesses can submit claims for VAT that may have been charged in error, potentially covering the previous four years. However, making a claim can have wider consequences, including adjustments to VAT previously reclaimed on costs. Specialist advice should be obtained before taking action.

Does this change affect permanent recruitment fees?
No. HMRC has confirmed that the tribunal decision does not affect permanent placement fees or margin-only recruitment arrangements.

Is HMRC’s guidance on locum doctor VAT final?
No. HMRC has not yet* provided definitive long-term guidance for the sector.

*Based on information available June 2026.