The VAT treatment of locum medical staff has also been recently examined in the case of Rapid Sequence Ltd v. HMRC, which was heard before the First-tier Tax Tribunal (FTT).

Rapid Sequence Ltd (the Company) was an employment business supplying locum doctors to NHS Trusts as a principal. The locum doctors operated either as self-employed individuals or through personal service companies, and were paid an agreed hourly rate by the Company, which in turn received payment from NHS Trusts for the provision of the locums’ services. The FTT had to determine whether the Company was providing an exempt supply of medical services, or, as HMRC claimed, a taxable supply of staff.

Under UK law, the supply of a deputy for a registered medical practitioner may be treated as VAT-exempt. HMRC argued that the provision of a deputy doctor is not exempt, but rather a standard-rated supply of employment agency services, and that it is the medical care provided by the doctor which qualifies for VAT exemption.

The FTT agreed, holding that, although the services provided by the Company came under this UK provision, that law must be considered in light of EU VAT law. The EU’s Principal VAT Directive states that exemption shall only apply to ‘the provision of medical care in the exercise of the medical and paramedical professions as defined by the Member State concerned’.

The FTT found that the company was making supplies of staff, as it had no control over the work carried out by its locum doctors, who worked under the ‘direction and control’ of staff at the NHS Trusts they were supplied to. It also found that UK VAT Law goes beyond the scope of the exemption for medical care allowed by the Directive. In light of this, the FTT reinterpreted the relevant provision of UK law to mean that VAT exemption only applied to ‘the provision of [medical care services provided by] a deputy for a person registered in the register of medical practitioners’.

As the company was not providing ‘medical care services’ under this revised wording, but was instead making taxable supplies of staff, the FTT rejected its appeal.

The significance of this decision is that it has, in effect, completely removed the VAT exemption for supplies of deputy medical practitioners from UK law. Suppliers who had relied on this provision when supplying medical staff to the NHS may now be required to charge VAT, as well as account for VAT on previous supplies. However, it is likely that the FTT’s decision will be appealed, and we will issue another update when there are further developments.