Our Specialist VAT Accountants for Pharmacies have curated a summary guide of the complexities related to VAT that pharmacies may face due to funding proposals aimed at expanding their community service offerings.
What are the funding proposals for Community Pharmacies?
Community pharmacies have a structure that involves various sources of income, such as service fees and the profits they make from acquiring medications at competitive prices.
These pharmacies have been successful in reducing medication costs for the NHS. However, the funding allocated to community pharmacies was decreased in the year 2016/17 and has seen only minimal adjustments since then.
Around 90% of a community pharmacy’s revenue comes from the NHS, which needs to cover expenses like rent, staff salaries, and other overhead costs. Moreover, pharmacies have faced rising expenses due to inflation and an increased workload during the pandemic.
In May 2023, the Government announced plans to empower pharmacies in England by granting them the authority to dispense prescriptions and take on patient care responsibilities. This initiative comes with a commitment of ยฃ645 million in investment.
Considering the VAT implications for community pharmacies
With the goal of improving community-based services such as health screenings and contraceptive consultations, pharmacies have an opportunity for expansion. However there is a catch involving VAT complexities related to documentation and the potential for VAT.
- Understand the Basics of VAT for your Business with our Comprehensive VAT Guide.
The government’s initiative to allocate NHS resources towards pharmacies for expanding community services represents a shift. Starting from May 1, it is important to note that there has been an expansion in the range of VAT services that can be provided under the guidance of a registered pharmacist.
While this legislative improvement is expected to enhance care, it also raises considerations regarding VAT, which is dependent on the volume and nature of services offered. This necessitates an examination of the implications of VAT. The dynamics surrounding VAT recovery for community pharmacies are poised for transformation based on the range of services adopted in accordance with these guidelines.
The landscape for VAT recovery in community pharmacies may undergo changes depending on the extent of services they provide. Specialist VAT service providers can assist in navigating these changes, ensuring pharmacies optimise VAT recovery while complying with exemption rules and restrictions. Previously, only personally delivered services by pharmacists were exempt from VAT. This implies that a significant portion of their income, including revenue from prescription drugs and retail sales, is subject to taxation and can be recovered through VAT.
- Learn about the various VAT Accounting schemes and how they might apply to your Business.
However, as the range of services becomes more varied, pharmacies may need to adapt their VAT recovery methods. This is particularly important if the proportion of their income that falls under exemption increases. It could potentially lead to limitations in accordance with the exemption rules.
Under the method, pharmacies can reclaim VAT on costs that are not solely related to taxable supplies. However, if pharmacies have overheads and expenses that are subject to VAT, they might struggle to recover an amount unless proactive measures are taken. This involves conducting cost analyses and directly attributing expenses to activities.
It may be necessary for pharmacies to make adjustments regarding assets like delivery vans. For example, they might need to review how they utilize vans for healthcare services in order to comply with apportionment and restriction rules under the exemption framework while still benefiting from VAT exemptions.
Considering these developments it is crucial for community pharmacy businesses to carefully assess their costs. The advantages of increased funding and expanded services should be weighed against the implications of VAT. Therefore, a strategic approach to management within this sector is essential, with specialist accountants for pharmacies providing essential guidance on relevant VAT services and compliance.ย
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