If you run a medical recruitment business supplying locum doctors, you will have seen the noise around HMRC’s December 2025 VAT update. You can read our blog explaining the update here. There is a lot of confusion in the market right now — and with NHS Trusts already contacting agencies to discuss past VAT charges, this is not something to sit on.
We have pulled together the questions we are hearing most from recruiters, along with our current understanding of where things stand. Please note that the VAT position continues to evolve and HMRC has not yet issued definitive go-forward guidance. Take specialist advice before making any decisions.
The Basics
No. Historically, HMRC’s position was that the supply of locum medical staff is generally standard-rated for VAT. This has been the accepted position across the sector for many years.
In the Isle of Wight NHS Trust case, the First-tier Tribunal ruled that the provision of GMC-registered doctors by a recruitment agency is VAT exempt under UK law — directly contradicting HMRC’s long-standing policy.
No. HMRC had the option to appeal but chose not to. That decision is generally taken to mean they have accepted the court’s findings.
On 15 December 2025, HMRC issued Revenue & Customs Brief 9 (2025). The brief invites businesses to submit claims for VAT potentially charged in error. However, it is notably vague on HMRC’s go-forward policy — what you should do from now on is not clearly set out.
We understand HMRC are currently “not insisting” that exemption applies. This is equally vague, and the sector — including representative bodies APSCo and REC — remains unclear on what HMRC’s actual policy position is. Pressure is being applied from all sides to get clearer guidance, but at the time of writing it has not arrived.
Which staff and which arrangements are in scope?
No. The VAT exemption is understood to link specifically to GMC-registered doctors. The GMC register also includes physician associates (PAs) and anaesthesia associates (AAs), who may also be in scope. Other allied health professionals (AHPs) are not currently considered to be within scope.
No. HMRC has confirmed this case does not affect their current policy on employment agency placement fees or direct engagement arrangements (margin-only), as these are not charges for supplying staff as principal. The issue centres on the supply of temporary staff.
The case was not limited specifically to recruitment agencies. It may be relevant for any organisation in the supply chain, including subcontracted agencies, other healthcare providers, personal service companies and umbrella companies.
What this means for your VAT position
This is the most significant risk for recruiters. If your supplies of locum doctors are treated as VAT exempt, you cannot reclaim VAT on the costs that relate to making those exempt supplies. Where you use umbrella companies or outsourced payroll providers, the VAT on their invoices — which you have likely been reclaiming — may need to be repaid to HMRC.
To put that in commercial terms: if you are earning a £37.50 gross margin on a placement and you lose the ability to reclaim £30 of VAT on your costs, that margin effectively falls to £7.50. For many businesses, that makes the current operating model unviable without changes to pricing or structure.
This is unlikely. UK law contains restrictive clauses that make it difficult to net off the two. The repayment of output VAT to clients and the restriction of your own input VAT recovery are likely to be treated as separate matters.
Claims and historic periods
Yes, it is worth considering even if you have not been asked. Submitting a claim proactively helps protect against a contractual claim from your clients further down the line, on the basis that you may have overcharged them for your services.
This is ultimately a business decision. From a practical standpoint, a single global claim is likely to be simpler to administer.
Not yet. We understand HMRC are currently logging claims and will process them once they have a firmer policy position.
Do not agree to anything quickly. Repaying output VAT to a client triggers corresponding VAT adjustments on your own returns, including potential restrictions on the input VAT you have already reclaimed. Before responding, you need to understand the contractual basis of the request, the full financial impact on your business, and how you will fund any repayment.
Going forward
Not without taking advice first. The VAT treatment depends on the specific facts — what is being supplied, how contracts are structured, and whether your arrangements fall within the exemption HMRC is discussing. A blanket change without checking the detail could create bigger problems.
Open dialogue with your NHS Trust and healthcare clients is important here. Some will be sympathetic and may agree revised commercial terms that reflect the changed VAT position. Any revised arrangements will need to comply with unjust enrichment regulations.
Some businesses are exploring this as a way of removing VAT from the cost base entirely. It is a legitimate option, but it has major operational, commercial, and employment law implications and needs to be worked through carefully before any decision is made.
Where things stand
The honest answer is that there is no definitive solution to publish right now. HMRC’s guidance remains unclear, and the right approach for your business will depend on how your contracts are structured, who is in your supply chain, and what your cost base looks like.
What we can say with confidence is that this issue has real commercial consequences and needs to be treated as a priority. APSCo, the REC and major advisers are actively pressing HMRC for clearer guidance. We will continue to keep you updated as the position develops.
To understand your VAT exposure, map your supply chain, and assess the financial impact on your business, contact our team today. We can help you take action now while HMRC guidance remains unclear.
