VAT & Locums
A recent FTT decision has clarified the VAT treatment of locum staff supplied between NHS bodies, with potentially far-reaching consequences for public sector finance teams.
The case involved the Isle of Wight NHS Trust, which provided locum doctors to other NHS organisations. HMRC had assessed these supplies as standard-rated for VAT, arguing they were staff supply services rather than exempt medical services. The Trust challenged this, asserting that the locums were delivering direct medical care, and therefore the supplies should be VAT-exempt under the healthcare exemption.
At the heart of the dispute was the interpretation of the Principal VAT Directive, which exempts services “closely related to medical care” from VAT. HMRC maintained that the Trust was merely supplying personnel, not medical services. However, the Tribunal disagreed, finding that:
The locums were integrated into the clinical teams of the receiving NHS bodies.
Their work was directly linked to patient care, not administrative or support functions.
The purpose and effect of the supply was the provision of medical treatment.
As a result, the FTT ruled that the supplies were exempt from VAT.
Key Takeaways
Substance over form: The FTT focused on the actual nature of the services, not just the contractual arrangements.
Medical purpose matters: Supplies that result in direct patient care are more likely to qualify for exemption.
Lead case status: This decision sets tone for similar disputes across the NHS and public sector.
Implications
This ruling could have significant financial implications for NHS Trusts and other healthcare providers:
VAT recovery strategies may need to be revisited.
Trusts that have accounted for VAT on similar supplies might consider retrospective claims.
HMRC may need to reassess its guidance on staff secondments and locum arrangements.
For tax professionals and finance teams, this case is a reminder to look beyond labels and assess the real-world function of services when determining VAT liability.