VAT implications arising from the changing role of the community pharmacist

Ellen Main-Jeffrey, Head of VAT Services, at Burgis & Bullock assesses the VAT implications arising from the changing role of community pharmacists in our latest blog.

As part of the Government’s recently published plans to improve access to primary care, NHS funds are to be diverted to support pharmacies. The new money is to pay pharmacies for expanding their community services, such as blood pressure monitoring and oral contraception advice.

Alongside this expansion of NHS funded services, there is an expansion of the exemption  for pharmacist’s services.

Legislation already provides for the supply of medical care by a registered pharmacist to be exempt from VAT and with effect from 1st May 2023, this exemption was extended to include services of medical care where they are carried out by staff directly supervised by a registered pharmacist. This enables pharmacists to delegate and increase the amount of care they provide to the community.

Whilst these changes will be welcomed by patients, depending on how much of this work local community pharmacy businesses take on, they could fundamentally change their VAT recovery profile.

Until now, the amount of exempt income generated by a local pharmacist business was limited by the fact that the exemption only applied to services which the pharmacist personally provided.

Therefore, as the majority of its income was taxable for VAT purposes comprising zero rated drugs on prescription and the income generated by the sale of all of the items typically sold in your local chemist shop it would have been able to recover most, if not all of the VAT it incurred on its costs.

However, this position will change if the amount of VAT exempt income substantially increases, such that the business is required to restrict the amount of VAT it recovers under partial exemption.

The default partial exemption method allows for VAT to be recovered on a proportion of the costs which cannot be wholly attributed to taxable supplies e.g. overhead costs, by reference to the proportion of taxable income to total income.

Careful analysis of costs will be essential.

Businesses which pay VAT on their rents and those that have high overheads, could find that the amount of irrecoverable VAT they suffer is significant unless they take specific measures to ensure costs are properly analysed and directly allocated to activities which generate taxable income where possible. 

There may even need to be changes in the way assets are used, for example a local pharmacist may deliver prescription drugs using two vans.

Going forward the people driving these vans may be able to carry out simple procedures such as taking someone’s blood pressure which would qualify for exemption provided the drivers are directly supervised by the pharmacist. 

If they do this, then the VAT incurred on the costs of running both vans will need to be apportioned and restricted under the partial exemption method. As such it might be better to use only one of the vans for this purpose. 

In conclusion, whilst community pharmacists will rightly welcome their additional funding and the opportunity of expanding their services to encompass their staff, they must be mindful of the VAT implications for record keeping and for mitigating irrecoverable VAT.

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