Important Update for Doctors and PCNs
HMRC has recently published Revenue & Customs Brief 9 (2025), clarifying its position on the VAT treatment of locum doctors and temporary medical staff. This follows a Tribunal decision that has changed how certain locum arrangements should be treated for VAT purposes.
While the update is technical, it has practical consequences for doctors, GP practices, and Primary Care Networks (PCNs) – particularly where VAT has historically been charged on locum invoices.
What doctors and practices need to know
Locum doctors and VAT – what’s changed?
Historically, HMRC treated the supply of locum doctors through agencies or intermediaries (Limited Companies) as a standard-rated supply of staff, meaning 20% VAT was often added to invoices.
However, the Tribunal case (Isle of Wight NHS Trust v HMRC) concluded that where a locum doctor is acting as a medical deputy, the supply can fall within the VAT exemption for medical services. HMRC has now accepted this position and updated its guidance accordingly.
In simple terms:
Many supplies of locum doctors that were previously treated as VATable should now be VAT-exempt.
Does this mean VAT refunds are available?
Potentially, yes – but with an important caveat.
Key VAT categories for dentists include:
- Only the supplier who charged the VAT (for example, the agency or provider) can reclaim VAT from HMRC.
- Practices or NHS bodies cannot reclaim VAT directly from HMRC but may be able to recover VAT indirectly if the supplier issues a credit note.
- Claims are generally limited to the last four years.
If you are a practice or Trust that has been paying VAT on locum doctor invoices, it is worth:
- Reviewing past invoices, and
- Speaking to your locum agencies about whether they intend to correct their VAT treatment.
Will this apply to all locums?
No. This update is focused on locum doctors acting as medical deputies. It does not automatically apply to:
- Non-medical staff,
- All agency workers, or
- Other staffing arrangements that are, in substance, a supply of staff rather than medical services.
Each arrangement still needs to be assessed based on the contractual and practical realities
What about Primary Care Networks (PCNs)?
VAT issues within PCNs are not new, and this locum update does not automatically resolve existing PCN VAT risks.
Common VAT pressure points for PCNs
PCNs often encounter VAT complexity because they involve:
- A lead practice or federation holding funds,
- One entity employing staff on behalf of others, and
- Recharging costs across multiple practices.
In VAT terms, HMRC has long taken the view that:
- The supply of staff (e.g. secondments or recharges of employment costs) is usually standard-rated, even if the staff are delivering NHS services.
- This can create unexpected VAT costs if arrangements are not structured carefully.
“On trust” funding arrangements
NHS England guidance has indicated that where a nominated practice or organisation:
- Receives PCN funding as a disclosed agent, and
- Holds funds on trust for the member practices,
the onward payment of those funds may fall outside the scope of VAT – provided the paperwork and reality align.
However:
- Any separate management or administration fee charged by the lead organisation is likely to be standard-rated.
- Poorly documented arrangements can still trigger VAT problems.
How does the locum VAT change affect PCNs?
The recent HMRC brief is relevant where PCNs or member practices:
- Purchase locum GP cover, and
- Have been charged VAT by agencies.
But it does not mean:
- All PCN staffing is VAT-exempt, or
- That recharges between practices are automatically outside VAT.
PCNs still need to distinguish carefully between:
- A supply of medical services, and
- A supply of staff or management services.
Practical next steps
For doctors and practices:
- Review locum invoices where VAT has been charged.
- Speak to suppliers about whether they will treat supplies as VAT-exempt going forward.
- Consider whether historic VAT may be recoverable via credit notes.
For PCNs:
- Review your PCN structure, agreements, and cashflows.
- Check whether funding is genuinely held “on trust” by a nominated payee.
- Identify any staff recharges or management fees that may attract VAT.
- Take advice before making any VAT corrections or claims.
Need support?
VAT in healthcare – particularly for locums and PCNs – is a specialist area, and small structural differences can have significant tax consequences.
If you’d like us to:
- Review your locum arrangements,
- Assess VAT risk within your PCN, or
- Support discussions with agencies or HMRC
Please get in touch with SIAL Accountants for tailored advice.