VAT on locum costs – Important update for GP practices and Primary Care Networks

A recent First-tier Tribunal decision has clarified that some locum doctor services can be VAT-exempt, which could result in five-figure annual savings for GP practices and Primary Care Networks.

The case of the ‘Isle of Wight NHS Trust and others v HMRC [2025]’ concluded that the VAT exemption for the ‘provision of a deputy for a registered medical practitioner’ can apply to locum doctors supplied by employment businesses, not just GP out-of-hours or deputising services.

For many GP practices and Primary Care Networks (PCNs), this presents a significant opportunity to reduce unnecessary and irrecoverable VAT costs.

HMRC has confirmed it will not appeal the decision of the First-tier Tribunal.

What the tribunal decision means for GP practices and PCNs

The key clarification relates to how locum services are treated for VAT purposes, particularly where locums are engaged through:

• Limited companies or personal service companies (PSCs)
• Agencies
• PCN-led or practice-hosted arrangements

Where the arrangement is structured correctly, locum clinical work can fall within the VAT exemption for medical care, rather than being treated as a standard-rated supply of staff.

This distinction is crucial: historically, some GP practices and PCNs have paid VAT on locum invoices without being able to recover it, increasing costs by 20%. As most GP practices and PCNs are not VAT-registered, they are unable to reclaim the VAT, and it therefore becomes a direct cost to the business.

Under the clarified approach, VAT may not need to be charged on certain locum arrangements, meaning there may be scope to reduce future costs.

Potential savings

The financial impact can be material:

• A practice spending £150,000 a year on locums could be paying up to £30,000 in irrecoverable VAT
• PCNs using multiple sessional and ARRS-style locums may realise significant five-figure annual savings
• Savings are ongoing, thereby improving cash flow in a challenging funding environment

While each arrangement must be reviewed individually, many practices and PCNs may still be incurring VAT on locum costs where it should not apply, creating an unnecessary cost that should be challenged.

Reclaiming historical VAT on locums may prove challenging, so act now to ensure you are not paying VAT unnecessarily.

What should practices and PCNs do now?

To benefit from the updated guidance, practices and PCNs should:

1. Review current locum arrangements
   How are locums contracted? Who is supplying the service – an individual, a company, or an agency?
2. Check invoices
   Is VAT being charged? If so, is it genuinely required?
3. Consider restructuring contracts where appropriate
   Small contractual or wording changes can make a significant difference to VAT treatment.
4. Take specialist advice
   VAT in primary care is complex, and HMRC will look at ‘substance over form’. Correct structuring now is essential to avoid future challenges and unnecessary additional VAT costs.

A timely opportunity

With ongoing financial pressures across general practice and PCNs, this clarification offers a rare opportunity to reduce costs without cutting services or workforce capacity.

Taking action now helps to ensure you are fully compliant with VAT rules and are not overpaying HMRC in unnecessary VAT charges. It will also mean your locum budgets deliver maximum value for patient care.