Isle of Wight NHS Trust Tribunal: VAT Refund Update for Locum Doctors
In a recent webinar jointly hosted by Kenny Lee, Head of Tax Services, Liaison Financial, and Jack Mazzina, Commercial Director, Liaison Workforce, provided a crucial update on the Isle of Wight NHS Tribunal ruling and its implications for NHS organisations across the UK. This landmark decision affects all NHS trusts, boards, and health organisations that procure locum doctors through agencies.
6 February 2026
Background: The Isle of Wight Ruling
The tribunal judgment, issued in September, centered on the VAT treatment of locum doctors supplied to NHS organisations. The case established that supplies of locum doctors to the NHS should be exempt from VAT, rather than standard-rated as they had been treated previously.
This is significant as VAT on locum doctors is non-recoverable for NHS organisations, representing a real cost to healthcare services across England, Scotland, and Wales.
HMRC had 56 days to appeal the decision but chose not to, making the ruling final.
The Claims Process
Following bringing the delegates up to date on the Isle of Wight ruling, Kenny discussed the processing for bringing claims, specifying that claims must be made by the supplier who charged the VAT, not directly by the NHS organisation. Once HMRC processes the refund, the supplier must pass it back to the NHS organisation. Kenny Lee says…
We’re preparing the claims in the format that HMRC have asked so that they’re ready for agencies to simply forward them to the team at HMRC and then when the refund comes in, it would be passed back to the NHS.
He also reminded the delegates to be aware of the impact of partial exemption on suppliers, and reminded them that at present, agencies can choose to treat locums as exempt from 16 December 2025, or they can continue charging VAT and wait for HMRC to publish updated guidance.
Progress to Date
Jack moved on to highlight that while the ruling applies to all NHS organisations across the UK that have procured locum doctors through agencies where VAT was charged, organisations that have been using 100% direct engagement (DE) models for the past four years will have nothing to claim. Through this procurement model, engaging staff directly means that VAT is not applied. Jack Mazzina says…
Direct engagement solutions have evolved over the past 10-15 years, a lot of them now add additional benefits… whether that be streamlining your process for communicating vacancies and booking them, validating the rates that you’re paying, streamlining the payment process, or additional compliance, there’s a wide range of benefits from the solutions.
Key Recommendations
- Act quickly: NHS organisations should review their locum doctor spend as soon as possible.
- Work with suppliers: NHS organisations need to proactively engage with agencies and suppliers to initiate the claims process.
- Budget for ongoing VAT charges: Until HMRC publishes updated guidance, some suppliers may continue charging VAT on new supplies.
- Consider direct engagement benefits: While the VAT treatment has changed, direct engagement models still offer other benefits including streamlined processes, rate validation, payment efficiency, and compliance assurance.
- Maintain documentation: Ensure all purchase invoices are retained and readily available, as HMRC may request them during claim reviews.
The Isle of Wight ruling represents a significant opportunity for NHS organisations to recover significant VAT costs on locum doctor supplies from the past four years. While the claims process requires coordination, the potential financial benefit makes this a priority for all affected organisations.
If your NHS organisation requires any further support regarding the ruling and its implications, please get in touch.