On 17 July 2026, HMRC published Revenue and Customs Brief 6 (2026), confirming a significant change to the VAT treatment of certain locum doctor supplies. The brief follows the First-tier Tribunal decision in the Isle of Wight NHS Trust case and clarifies when the supply of a GMC-registered locum doctor may be treated as VAT-exempt rather than standard-rated.

If you run or manage a medical recruitment agency, this change could affect your VAT position, your margins, and the way you account for input tax. It may also create an opportunity to reclaim overpaid VAT from previous years, but that process comes with important conditions.

In this article, we look at what the brief actually says, what it means commercially, and the steps you should consider taking now. It might get a bit more technical than our usual articles, but that’s because of the technical nature of the brief, so bear with us.

What the Exemption Actually Covers

The first thing to understand is that this exemption is narrow and conditional. It does not mean that all supplies of temporary healthcare workers are now VAT-exempt.

The exemption may apply where all of the following conditions are met:

• The individual supplied is a GMC-registered doctor.
• They are performing medical services in their capacity as a registered medical practitioner.
• The role they are filling requires a person who is registered with the GMC; in effect, the agency is providing a deputy for a registered medical practitioner.

The key phrase in the legislation is “the provision of a deputy for a person registered in the register of medical practitioners” under Item 5, Group 7, Schedule 9 of the VAT Act 1994. If the role could lawfully be performed by someone who is not GMC-registered, the exemption may not apply.

What it does NOT cover

It is equally important to be clear about what falls outside this exemption:

• Physician associates and anaesthesia associates — these roles do not require GMC registration in the same capacity.
• Allied health professionals such as nurses, physiotherapists, or radiographers — they are registered with different bodies and are not covered by this specific provision.
• General staffing — administrative, portering, or other non-clinical roles are entirely unaffected.

The exemption turns on the specific legal requirement for GMC registration in the role being filled. If that requirement is not present, the supply remains standard-rated at 20%.

The Commercial Implications

At first glance, a VAT exemption might sound like good news: no VAT to charge on qualifying supplies. But the commercial picture is more nuanced than that, and agencies need to think carefully about the knock-on effects.

Partial exemption and input VAT recovery

Under normal VAT rules, when you make taxable (standard-rated) supplies, you can recover the VAT you incur on your own costs, your input VAT. When you make VAT-exempt supplies, you generally cannot recover input VAT on costs that relate to those exempt supplies.

This is known as partial exemption, and it is a standard principle of VAT law. It is not unique to umbrella companies or any particular business model; it applies to any business that makes a mixture of taxable and exempt supplies.

In practice, this means that if some of your locum doctor supplies become VAT-exempt, you may lose the ability to reclaim VAT on costs directly attributable to those supplies. You may also need to apportion VAT on your general overheads between your taxable and exempt activities.

De minimis relief

There is an important safety net. HMRC operates a de minimis threshold for partial exemption. If your exempt input tax is:

• £625 per month or less on average (£7,500 per year), and
• 50% or less of your total input tax,

then you are below the de minimis limit and may still be entitled to recover all of your input VAT, even though some of your supplies are exempt.

Both conditions must be met. If your exempt input tax exceeds either threshold, you will need to restrict your input VAT recovery in line with the partial exemption rules.

Impact on margins

For agencies operating on tight margins — as many in medical recruitment do — even a small restriction on input VAT recovery can have a meaningful effect on profitability. This is particularly true where high costs (such as payments to umbrella companies or payroll intermediaries) carry VAT that may become irrecoverable under the partial exemption rules.

It is probably worth modelling the financial impact before making any changes to your VAT treatment.

Four-Year Back-Claims

R&C Brief 6 (2026) also opens the door to retrospective claims. If you have been charging VAT on supplies that should have been treated as exempt, you may be able to reclaim the overdeclared output VAT for periods going back up to four years. The process involves submitting a VAT652 form (the voluntary disclosure form) to HMRC.

However — and HMRC is explicit about this — any back-claim must be a net amount. You cannot simply reclaim four years of output VAT without also adjusting for the input VAT that you should not have recovered during the same period.

If your supplies were exempt, you were not entitled to recover the related input VAT. So any refund claim must be reduced by the input VAT that would have been irrecoverable under the partial exemption rules. In some cases, after making these adjustments, the net benefit of a back-claim may be smaller than expected — or even negligible.

HMRC may also apply unjust enrichment principles. If the VAT you charged was passed on to your customers (and absorbed by them or the end client), HMRC may argue that refunding you would result in a windfall and refuse the claim on that basis, and any refund should be returned to the party that incurred the cost.

So back-claims may be possible, but they need to be approached with care and with proper calculations.

Practical Steps for Medical Recruitment Agencies

Given the complexity of this area, we would recommend working through the following steps before making changes to your VAT treatment:

1. Identify which supplies may qualify.

Review your current contracts and the roles you are filling. Which placements involve GMC-registered doctors performing medical services in roles that require GMC registration? Not every doctor placement will meet the conditions.

2. Map your supply chains.

Understand the contractual structure of each placement. Are you supplying directly to an NHS trust, or through a framework, a managed service provider, or another intermediary? The structure matters for determining the correct VAT treatment.

3. Model the financial impact.

Run the partial exemption calculations. What proportion of your input VAT relates to the newly exempt supplies? What would the restriction look like? How does it affect your margins? uhy-uk

4. Check your de minimis position.

Calculate whether your exempt input tax falls below the de minimis thresholds (£625 per month on average and no more than 50% of total input tax). If it does, the practical impact on your input VAT recovery may be minimal.

5. Review contracts with umbrella companies and payroll providers.

If you work with intermediaries, check how the change in VAT treatment affects those arrangements. Costs that carry VAT but relate to exempt supplies may become irrecoverable.

6. Seek specialist VAT advice before making changes.

This is specialist territory. The interaction between exempt supplies, partial exemption, de minimis limits, and back-claims is complex. Getting it wrong — in either direction — can be costly. We strongly recommend taking professional VAT advice before amending any returns or changing your treatment. uhy-uk

7. Consider a back-claim, but proceed with caution.

If you believe you have been overdeclaring output VAT, a retrospective claim may be worthwhile. But make sure you account for the input VAT adjustments, assess the unjust enrichment risk, and take advice on the net position before submitting a VAT652. uhy-uk

How SmartWork Can Help

At SmartWork, we work closely with healthcare recruitment agencies and understand the pressures and complexities of operating in this sector. This is a complex and evolving area of VAT law; therefore, we recommend that all agencies seek independent, specialist VAT advice before making changes to their VAT treatment or submitting retrospective claims.

If you would like to discuss how SmartWork can support your agency, please get in touch with us. SmartWork is a fully compliant SafeRec Certified, FCSA Accredited and APSCo Member with an umbrella service contractors love.

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