HMRC has updated its VAT guidance following a First Tier Tribunal decision involving the Isle of Wight NHS Trust, confirming that fees charged for the supply of locum doctors should have been treated as VAT exempt. As a result, NHS Trusts and private healthcare providers affected by the previous policy may now be able to reclaim overpaid output tax going back up to four years.
The Isle of Wight NHS Trust case acted as a lead appeal and its outcome applied to 13 other NHS Trusts. The tribunal ruled that the supply of locum doctors carrying out the duties of a registered medical practitioner falls within the VAT exemption. This meant the NHS Trust had been incorrectly charged VAT on those supplies.
During the hearing, HMRC argued that the supply of locum doctors “was not a supply meeting the terms of the exemption provided under Item 5, Group 7, Schedule 9, Value Added Tax 1994 (VATA) (Item 5)”. The tribunal rejected this position in what was described as a “fractious” case, finding in favour of the NHS Trust.
The ruling, published in September, prompted HMRC to review its existing approach. On 15 December, HMRC issued updated guidance on the VAT treatment of temporary medical staff, including locum doctors.
In its policy paper dated 15 December, HMRC confirmed how affected businesses can reclaim VAT that was incorrectly declared as output tax. The guidance states that it should be possible to recover overpaid VAT incurred “within the last four years”, which is expected to take claims back to December 2021, although no specific start date was confirmed in the update.
The revised guidance is relevant to NHS bodies, private healthcare providers, employment businesses supplying locum doctors and VAT advisers. It sets out HMRC’s updated position on the VAT treatment of locum doctors, the implications for both input and output tax, and the process for reclaiming overdeclared VAT.
A refund may be available where all of the following conditions are met:
- you have supplied locum doctors
- output tax was charged at the standard rate
- the supply should have been treated as VAT exempt
- the supply was made within the last four years
HMRC has emphasised that “Only the person who made the supply of staff and charged output tax can claim a refund.” It also stated that “HMRC will not pay a claim which would result in your unjust enrichment.”
Claims for overpaid VAT can be made in one of two ways, depending on the amount involved. Businesses can either adjust the VAT return for the relevant period or submit an error correction notification using form VAT652.
HMRC has been contacted for further clarification on how the four-year claim period should be calculated and the precise date from which claims can be made.
