A recent ruling by a Tax Tribunal about the application of VAT for supplies of locum doctors may have a major impact for recruitment companies who have previously considered the supply exempt from VAT. The case involved Rapid Sequence Ltd who had defended their position with HMRC but were over-ruled by the tribunal judge. The company supplied overseas based anaesthetists to hospitals in the NHS and received a fee based on the number of hours that the locum doctors worked; the locums themselves were self-employed. They did not charge VAT on their invoices as they believed that it was correct to apply the exemption, provided under Item 5 of Group 7 or Schedule 9 of the VAT Act 1994, for the provision of a deputy for a person registered in the register of medical practitioners.
HMRC’s argument, which was successfully upheld, was that, in order for the exemption to apply, Rapid Sequence would need to be making supplies of medical care where, in fact, they were making supplies of staff. The tribunal also noted that the locums were not under the supervision and direction of the agency; the doctor was self-employed would exercise his own professional judgement and allocation of work and administrative matters would be dealt with by the NHS trust.
HMRC also maintained that it was the medical care that was provided by the locum doctor that would be exempt from VAT and not the provision of his services by the recruitment agency and they stated that this opinion was in line with Article 132 of the Principal VAT Directive.
Although it is felt that Rapid Sequence may appeal the case, recruitment agencies should be very wary of using the VAT exemption which applies to the supply of medical care if their only role is to supply staff. This ruling confirms that an umbrella company employing a medical professional whose work is sourced through a recruitment agency should be charging standard rate VAT on their invoices. An exemption which does not apply to the agency will certainly not apply to a third party intermediary.