VAT is one of those areas that often causes confusion for pharmacy owners. It becomes even more complicated when your business is involved in wider clinical services, works closely with GP practices, or engages temporary medical staff.
In this article, we explain the new guidance in clear terms, what has changed, and what pharmacy owners should be thinking about now.
Why this VAT update matters for pharmacies
Community pharmacies today do far more than dispense medication. Many are involved in:
- NHS commissioned clinical services
- Working alongside GP practices and primary care networks
- Providing healthcare services through pharmacy led clinics
- Contracting with medical professionals to support service delivery
Where locum doctors are engaged as part of these services, either directly or through agencies, VAT treatment can have a real impact on costs, pricing and cash flow.
HMRC’s updated position may mean that VAT has been incorrectly charged in the past and that refunds could be available.
Background to the HMRC guidance
HMRC issued Revenue and Customs Brief 9 (2025) following the decision of the First Tier Tribunal in Isle of Wight NHS Trust v HMRC [2025] UKFTT 1114 (TC).
This case considered whether the supply of locum doctors should be exempt from VAT under existing legislation. It was a lead case covering 20 similar appeals, making it highly relevant across the healthcare sector.
HMRC has confirmed it will not appeal the decision and is now reviewing its policy, with further guidance expected.
The VAT exemption in question
The exemption sits within UK VAT law at:
Item 5, Group 7, Schedule 9 of the Value Added Tax Act 1994
“The provision of a deputy for a person registered in the register of medical practitioners”
For years, HMRC interpreted this exemption very narrowly.
HMRC’s previous approach and why it caused issues
HMRC previously argued that the exemption only applied to traditional deputising services, such as GP out of hours cover where a specific named doctor was being replaced.
Under this view:
- Routine supply of locum doctors was treated as taxable.
- Filling a vacant post did not qualify as deputising.
- VAT was charged at 20%.
As a result, many healthcare providers and agencies charged VAT on locum doctor supplies as a matter of course.
This approach increased costs for pharmacies and healthcare businesses involved in wider clinical services.
What the tribunal decided
The tribunal rejected HMRC’s narrow interpretation.
It ruled that:
- A locum doctor supplied to fill a role normally held by a registered doctor is acting as a deputy
- There does not need to be a direct replacement of a named individual
- Temporary medical staff can qualify for the VAT exemption
The key factor is the nature of the role, not whether a specific doctor is being replaced. HMRC accepted the decision and has confirmed that its previous interpretation was too restrictive.
What this means in practice for pharmacies
For pharmacies, this matters where locum doctors are engaged as part of service delivery, for example:
- Pharmacy-led healthcare services involving medical oversight
- Clinics operating alongside GP practices
- Integrated primary care services where doctors support pharmacy services
In these situations, supplies of locum doctors may now fall within the VAT exemption, reducing VAT costs and opening the door to reclaiming VAT charged in error.
Important distinction: locum doctors vs locum pharmacists
This is where pharmacy owners need to be careful.
The tribunal decision and HMRC guidance apply specifically to registered medical practitioners, meaning doctors.
Locum pharmacists are subject to different VAT rules. In most cases, the supply of a locum pharmacist is outside the scope of this exemption and may still be taxable depending on how the service is structured.
This distinction is critical. Applying the wrong VAT treatment can lead to underdeclared VAT, penalties and interest.
As pharmacy specialist accountants, we strongly recommend reviewing each arrangement individually before making any changes.
Can pharmacies reclaim VAT already paid?
In some cases, yes. If VAT was charged at the standard rate on supplies of locum doctors that should have been treated as exempt, businesses may be able to reclaim VAT going back up to four years.
This could apply where a pharmacy or connected business:
- Paid VAT on locum doctor services
- Acted as an intermediary in supplying doctors
- Charged VAT on onward supplies that now qualify for exemption
How to make a VAT refund claim
HMRC has set out two routes depending on the value of the claim.
Adjusting a VAT return
For smaller amounts, it may be possible to correct the error on your next VAT return.
This approach is subject to HMRC’s error correction limits.
Submitting a formal claim
For larger claims, HMRC requires a formal error correction process.
This involves:
- Completing form VAT652
- Providing full explanations as set out in Revenue and Customs Brief 9 (2025)
- Emailing the form to “ccg.locumdoctorsclaim@hmrc.gov.uk”
- Using the subject line “Locum doctors claim RCB 9/25”
Claims must be accurate, clearly explained and supported by records.
Input VAT adjustments cannot be ignored
One of the most important points for pharmacy businesses is the impact on input VAT.
If supplies were previously treated as taxable, the business may have reclaimed VAT on related costs. If those supplies are now treated as exempt, some of that input VAT may no longer be recoverable.
HMRC expects claims to reflect the net VAT position, not just the output VAT charged.
Failing to account for this can delay claims or trigger enquiries.
Why pharmacies should seek specialist advice
Pharmacy VAT is already complex, and this new guidance adds another layer. The correct treatment depends on:
- Who is supplying the medical professional
- The nature of the services provided
- Contractual arrangements
- How invoices have been raised
- How VAT has been treated historically
Getting this wrong can be costly.
At 3E’S Accountants, we specialise in supporting pharmacy owners, locum professionals and healthcare businesses across the UK. We understand how pharmacies operate in practice and how VAT rules apply within the pharmacy sector.
Final thoughts
HMRC’s updated guidance on the VAT treatment of locum doctors is a significant development for the healthcare sector. It confirms that VAT exemption can apply more broadly than HMRC previously accepted, and opens the door to potential VAT refunds for past periods.
However, reclaiming VAT is not automatic. Claims must be carefully prepared, input VAT adjustments considered, and records reviewed in detail.
If you would like support reviewing your VAT position or making a claim, speak to our specialist pharmacy accountants today.
