VAT and nursing agencies: lessons from 1st Alternative Medical Staffing Ltd vs HMRC

Overview

The recent First-tier Tribunal decision in 1st Alternative Medical Staffing Ltd v HMRC ([2025] UKFTT 1320 (TC)) provides important clarity for businesses operating in the healthcare staffing sector. The was case centred on whether the supply of agency nurses and care assistants to hospitals and care homes could be treated as VAT-exempt under UK law.

Background

1st Alternative Medical Staffing Ltd supplied nurses and care assistants to NHS and private institutions. The company charged VAT on its commission but treated the reimbursement of employment costs as exempt. HMRC disagreed, issuing VAT assessments totalling £265,590 for the period 2014–2016, later revised to £221,325.

The company argued:

• Its services were exempt under Schedule 9, Group 7, Item 4 of VATA 1994, which covers “the provision of care or medical treatment and closely related activities.”
• Alternatively, it sought to rely on the Nursing Agencies Concession (NAC) and claimed a legitimate expectation based on prior HMRC correspondence.

Tribunal’s key findings:

• State regulation requirement: To qualify for exemption, the supplier must be a “state-regulated institution” (approved, licensed, or registered under an Act of Parliament). The Appellant was not registered with the Care Quality Commission during the relevant period and did not meet this requirement.
• Closely related services: While the Tribunal acknowledged that agency nurses are essential for safe medical care, the exemption applies only when the supplier itself meets the regulatory criteria. Commercial agencies operating in competition cannot benefit from the exemption, as this would distort the market.
• Nursing agencies concession: The Tribunal confirmed that NAC could not be applied retrospectively and was not relevant to the periods assessed..

Practical implications for healthcare staffing businesses:

• VAT applies to agency staffing: Unless your business is a state-regulated institution, supplies of staff, even qualified nurses, are standard-rated for VAT.
• Framework agreements don’t equal regulation: Being part of NHS or private sector frameworks does not make an agency “state-regulated” for VAT purposes.
• Audit and compliance are not enough: Meeting client-imposed vetting and training obligations does not change VAT liability..

Summary

Healthcare staffing agencies should review their VAT treatment carefully. Assuming exemption based on the nature of the work or client relationships can lead to significant liabilities.

If in doubt, please reach out to discuss any of the above in further detail.