Member Article

VAT expert warns of potential tax implications for expansion of services for pharmacies

A leading tax expert has warned of potential tax implications which may arise for pharmacies following plans to provide new funding to expand their community services.

Ellen Main-Jeffrey, Head of VAT Services at Warwickshire-based accountancy firm Burgis & Bullock, says that whilst community pharmacists will welcome 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 irrecoverable VAT.

New plans from government will see NHS funds directed to support pharmacies for expanding their community services – such as blood pressure monitoring and oral contraception advice.

Existing legislation already saw supply of medical care by a registered pharmacist to be exempt from VAT – but on May 1 the exemption was extended to include services of medical care where they are carried out by staff directly supervised by a registered pharmacist.

The change enables pharmacists to delegate and increase the amount of care they provide to the community.

Ellen, who has specialised in VAT for 35 years, says that the changes are positive for patients but could lead to VAT implications depending on the amount of work taken on and urged careful analysis of costs.

“Whilst these changes will be welcomed by patients, the VAT recovery profile of a community pharmacy could fundamentally change depending on how much of this work they take on,” said Ellen.

“Until now, the amount of exempt income generated by a pharmacist 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.

“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.

“This would be 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.

“I would urge all community pharmacist businesses to analyse their costs carefully as the benefits brought by additional funding and opportunities to expand services may be diminished by VAT implications.”

Burgis & Bullock has offices in Leamington, Rugby, Stratford-upon-Avon and Nuneaton.

This was posted in Bdaily's Members' News section by Matt Joyce .