VAT in Healthcare Sector – Major Update

Established HMRC VAT guidance on the supply of locums overturned at tribunal…

The First Tier Tax Tribunal has handed down a potentially major judgment relating to the correct VAT treatment of the supply of locum doctors in the healthcare sector.  Given that this judgment, if it stands, changes how the supply of locum doctors is treated for VAT purpose, we have set out the main features of the judgment, it’s potential impact and what those in the healthcare should do in the short term below.  If you would like to read more view our full technical judgment fact file here.

What does the judgment say?

1. HMRC have long held the position that the supply of locum doctors is not an exempt supply for VAT purposes and therefore any supply is considered a supply of staff.
2. Consequently, HMRC’s guidance and prevailing practice in the healthcare sector has been to apply the standard rate of VAT to all such supplies.
3. The Isle of Wight NHS Trust (as the lead case of 20 Trusts) challenged HMRC’s guidance arguing that the supply of locum doctors was, in fact, an exempt supply for VAT purposes.
4. The First Tier Tax Tribunal (FTT) agreed with the Trust and found that the supply of locum doctors was an exempt supply.
5. Consequently, the judgment of the FTT casts aside HMRC’s longstanding guidance and VAT treatment to the supply of locum doctors.
6. It should be noted that given the ramifications of the judgment it is likely that HMRC will appeal but this is yet to be confirmed.

What are the ramifications?

Should the judgment stand…

• It means that VAT (at the standard rate) should not have been applied to the supply of locum doctors as defined in the judgment.
• VAT charged on previous invoices may well have to be refunded by HMRC.
• Parties throughout the contractual chain will be seeking a refund of the VAT they have been charged incorrectly (given the judgment of the FTT).

What should I do if I’m in a supply chain that includes the supply of locum doctors?

1. Read the full newsletter first to understand the judgment’s application in full!
2. Identify those supplies that fit the judgment’s scope.
3. Quantify any potentially incorrect payments made and/ or received.
4. Be prepared to either make protective requests for refunds of incorrect VAT charged to you or to make protective reclaim applications to HMRC.
5. Take advice, this judgment has a very precise application and as we have already stated, HMRC are likely to appeal, meaning any refunds or reclaims will possibly be stayed pending the outcome of any appeal.  As such, technical guidance on the law will be required throughout the process.
6. Sign up to our newsletters by emailing enquiries@chartergates.com where we will keep you in the picture.

I need help, what should I do?

If you believe that this judgment impacts your business, contact the team at Chartergates where we will be happy to discuss this further with you.  For more information just email Hilary or Shyam at Chartergates.