Who should read this?
HMRC has invited the suppliers of locum doctors as temporary medical staff to submit claims for repayment of overdeclared VAT following a landmark change in VAT treatment. HMRC’s Revenue & Customs Brief 9/2025 (R&C Brief 9/2025) confirms that HMRC will not appeal the First‑Tier Tribunal’s decision in Isle of Wight NHS Trust v HMRC, recognising supplies of locum doctors as VAT-exempt under Item 5, Group 7, Schedule 9 of the VAT Act 1994.
The legislation
Item 5, Group 7, Schedule 9 of the VAT Act 1994 says:
“The provision of a deputy for a person registered in the register of medical practitioners,” is exempt from VAT.
What does the brief confirm?
HMRC previously considered that Item 5 was restricted to the supply of deputising services such as the GP out of hours service. They viewed locum placements by employment businesses as a standard-rated supply of staff. That position has now been abandoned following the Tribunal ruling, and HMRC will not be appealing.
R&C Brief 9/2025 confirms the exemption covers all locum doctors, not merely GP out-of-hours or named-deputy arrangements.
Employment businesses and other suppliers who have supplied locum doctors may have overdeclared output tax and can submit claims for repayment to HMRC.
What should suppliers do now?
Suppliers of locum doctors should no longer charge VAT on supplies falling under Item 5. If there is any uncertainty whether a supply falls under this provision, professional advice should be sought.
HMRC will publish updated guidance to set out its new policy in this area, however suppliers who have declared VAT should not wait to make a claim for overdeclared output tax, as claims are subject to four-year capping rules.
Claims to HMRC for repayment of overdeclared output tax should be submitted as early as possible. This will protect the supplier’s position and enable maximum VAT repayment.
What will HMRC repay?
Claims will be subject to usual partial exemption rules, and HMRC may seek to invoke a defence of unjust enrichment to prevent claims being repaid. This means they will only repay output tax if it is satisfied the claimant will not be ‘unjustly enriched’ by the repayment.
Guidance published by HMRC for the purpose of informing its own officers (VRM12100), confirms that unjust enrichment will be invoked on a supplier where HMRC can show that the ’economic burden’ of the VAT has been passed by the supplier to its customers. Suppliers will hold a defence against HMRC invoking unjust enrichment where it can demonstrate that the charge they make is the market rate, inclusive of VAT.
Subject to the unjust enrichment defence, HMRC will repay the balance of output tax overdeclared, less any offset for irrecoverable input tax subject to a recalculation of the supplier’s partial exemption position.
Will it impact other types of supply?
We are aware many employment businesses have moved towards a direct engagement model in recent years, where the locum is engaged directly by the customer. This change in VAT treatment has no impact on employment businesses making supplies under this model.
Who will be entitled to repayment?
Only the supplier will be able to recover the overdeclared output tax from HMRC. This is confirmed in R&C Brief 9/2025.
Suppliers of locum doctors may receive claims from customers requesting the supplier pays over the VAT reclaimed. Suppliers should review their contractual position as this will have a significant impact on the requirement to repay any or all the output tax overdeclared.
What about VAT previously recovered as input tax?
Suppliers of locum doctors will now need to consider the impact on VAT recovery for a partially exempt business, possibly for the first time.
Since these supplies shift from taxable to exempt, VAT which has previously been recovered may need to be recalculated as there is an increase in the suppliers’ exempt supplies.
HMRC will offset this against any claim for overdeclared output tax, so will expect this recalculation to be undertaken prior to accepting any claim for repayment.
How to make claims?
HMRC have requested that claims are submitted to [email protected] using ‘Locum doctors claim RCB 9/25’ as the subject line.
Our expert's thoughts
"R&C Brief 9/2025 confirms that suppliers of locum doctors can submit a claim to HMRC for overdeclared VAT. Acting to submit a claim quickly is crucial to protect your position as a supplier. Our team of VAT specialists is ready to support your business throughout this process."
