VAT on locum doctors: What the 2027 changes mean for the NHS and staffing agencies – Autumn Budget 2026

Published by Tim Creasey on 9 November 2026

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In our earlier article, “Supplying or engaging locum doctors: HMRC’s VAT change could affect you“, we discussed the Isle of Wight NHS Trust v HMRC decision, which found that the VAT exemption for the provision of a deputy applied more widely than HMRC had previously accepted. HMRC subsequently confirmed that it would not appeal the decision.

Budget 2026 has now brought that position to an end.

From 1 May 2027, the government will repeal the VAT exemption for the supply of a deputy, meaning that most locum doctor supplies made through agencies and staffing businesses will (once again) be subject to 20% VAT.

What does this mean in practice?

For recruitment businesses and staffing agencies, the change means that supplies which may currently qualify for VAT exemption will generally return to being subject to VAT

For healthcare providers with restricted VAT recovery, including the NHS, this could increase the cost of engaging locum doctors through traditional agency arrangements.

Will this change temporary staffing models?

Probably not.

In recent years, many recruitment businesses have rolled out “direct engagement” models.  The idea is simple; healthcare providers directly engage clinicians and pay them via payroll which removes the VAT on the clinician’s salary. These models can remove much of the VAT cost.  As a result, suppliers offering direct engagement and other workforce solutions may continue to see demand from NHS and private healthcare organisations seeking to manage irrecoverable VAT costs.

What should organisations do?

Recruitment businesses, staffing agencies, and healthcare providers should use the period before 1 May 2027 to review existing arrangements and assess the potential impact

Based on the government’s announcement, we would expect the change to apply from 1 May 2027, with qualifying supplies made before that date and historic claims already submitted to HMRC remaining unaffected. However, we await the detailed legislation and HMRC guidance to confirm the position.

If your organisation engages locum doctors or supplies medical staffing services, our VAT team can help you understand the upcoming changes and review how they could affect your arrangements. Get in touch to discuss what the changes mean for your organisation.

RevealWill the change affect supplies made before 1 May 2027?

Based on the government’s announcement, we would expect the change to apply from 1 May 2027, meaning qualifying supplies made before that date should retain their existing VAT treatment. 

RevealWhat happens to claims already submitted to HMRC?

Our initial view is that historic claims submitted to HMRC following the Isle of Wight NHS Trust v HMRC decision should not be affected by the change. Again, we await the detailed legislation and guidance to confirm the position.  

RevealWill all supplies of locum doctors become subject to VAT?

Not necessarily. Deputising services which are primarily providing medical care can continue to qualify for VAT exemption. 

RevealWill direct engagement arrangements still be attractive?

Potentially, yes. For healthcare providers that cannot fully recover VAT, direct engagement models may continue to offer a VAT advantage because remuneration paid through payroll falls outside the scope of VAT. However, any arrangement should also be assessed.  

RevealWhat should healthcare providers and staffing businesses be doing now?

Although the change does not take effect until 1 May 2027, organisations should begin reviewing their arrangements now. In particular, businesses may wish to review pricing, and contractual arrangements etc.  

RevealWhat should recruitment businesses be doing now?

Although the change does not take effect until 1 May 2027, recruitment businesses should begin reviewing their position now. This may include assessing the impact on pricing, customer contracts and future commercial arrangements.  

RevealWhy has the government changed the law?

The change follows the Isle of Wight NHS Trust v HMRC decision, which found that the exemption for the provision of a deputy applied more widely than HMRC had historically accepted. Rather than appeal the decision, the government has chosen to amend the legislation, restoring the VAT treatment it considers was originally intended.  

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