In the recent case of Isle of Wight NHS Trust v HMRC [2025] UKFTT 1114 (TC), the First-tier Tribunal (FTT) held in favour of the taxpayer that the supply of locum medical staff is VAT exempt.
The appeal arose when the Isle of Wight NHS Trust (IOW NHS) sought to appeal a decision of HMRC that VAT was chargeable on the supply of locum staff. The FTT had previously found in favour with HMRC in the decision of Rapid Sequence Limited v HMRC [2014] UKFTT 432 (TC).
About the case
The legislation in question (VATA 1994, Sch. 9, Gr. 7) provides as follows:
Item 1: “The supply of services consisting in the provision of medical care by a person registered or enrolled in… (a) the register of medical practitioners…” (emphasis added)
Item 5: “The provision of a deputy for a person registered in the register of medical practitioners or the register of medical practitioners with limited registration.” (emphasis added)
The case revisited and answered a number of questions which are fascinating for those with a profound interest in VAT litigation procedure and principle: a truly gripping read for a rather niche subset of humanity. For the sake of those who are not so inclined, we have focused this article on the key question:
Is the supply of a locum VATable or VAT exempt?
Currently, such a supply is VAT exempt.
We are expecting HMRC to appeal the decision and/or amend the legislation in due course.
HMRC had argued that “the provision of a deputy for a person registered” meant that the deputy had to be a stand-in for a specific person. Essentially, this would restrict the VAT exemption to a scenario where, for example, a deputy was provided to cover a specific doctor who was absent due to sickness. HMRC also relied on documents relating the purpose of the legislation to support this position.
IOW NHS argued that the legislation was to be interpreted more broadly, in that “a person registered” did not mean a specific person.
Reasons for the decision
Judge Brown agreed with IOW NHS and held that “a deputy for a person registered” refers to “the supply of a person of a defined type” and is not limited to out-of-hours cover for a specific person.
In an important aside, the judgement also referred to the fact that VAT is a self-assessed tax. If you make supplies of Jaffa Cakes, you need to determine whether they are VATable or not based on what they are (cakes or biscuits?). It would make no sense if you had to make this decision based upon the criteria relating to the person buying and eating the Jaffa Cakes (e.g. their employment situation). In her typical style of judgement, Judge Brown found that HMRC’s interpretation of the legislation “would render the scope of the exemption absurdly unworkable.” She noted that Item 5 “provides no mechanism” for the supplier to find out the specific reason for the recipient hiring the locum.
There are areas of VAT where the legislation does provide such a mechanism. One example is where a person constructing a building for a relevant residential purpose must provide a certificate of their intention of such use to the builder, in order to benefit from zero rating of the construction services. Judge Brown would seem to be clarifying that the lack of such a legislative mechanism would preclude HMRC from reading one in.
Would you like to know more?
For more information about VAT exemptions, and specialist guidance on VAT compliance for your business, get in touch with Luigi Lungarella or send us an enquiry.
