Published on: 12th September 2014 | Updated on: 1st November 2023

Funding from December 2016

Following the community pharmacy funding imposition, Community Pharmacy England discussed with HM Revenue and Customs (HMRC) the VAT treatment of the revised fees and payments that were implemented from 1st December 2016, and in particular the VAT treatment of the Single Activity Fee. We stressed to HMRC the need for an early decision on these matters.

Guidance will be issued to pharmacy owners as soon as the VAT treatment of the fees is determined.

Once the VAT treatment of the fees has been determined this will apply retrospectively from the date of implementation, 1st December 2016, and contractors should be aware that they may be obliged to go back and correct their VAT returns.

In September 2022, the Department of Health and Social Care confirmed that discussions with HMRC about the VAT treatment of the CPCF were ongoing, but HMRC had confirmed that the following are out of scope for VAT:

  • Pharmacy Quality Scheme
  • Pharmacy Access Scheme
  • Transitional payment
  • Service set-up fees

Pre December 2016 guidance

Where dispensing or repeat dispensing is undertaken by a pharmacist, against a prescription issued by a doctor, dentist or nurse, that activity is currently zero-rated for VAT purposes. HM Revenue and Customs (HMRC) have concluded that the following payments within Essential services relate to the core dispensing activity and so are zero rated:

  • Item fee
  • Establishment payment
  • Protected Professional Allowance (ceased from 31st March 2008)
  • Repeat dispensing annual payment
  • Transitional payment
  • Special fees

The situation relating to other aspects of the Essential and Advanced services is slightly more complicated. We have summarised the position below but for a fuller picture please refer to the HMRC guidance.

The Disposal of Unwanted Medicines is a standard-rated supply. Signposting does not need to be performed by a pharmacist and is also standard-rated.

The Promotion of Healthy Lifestyles is likely to involve individually tailored advice given by the pharmacist to patients in certain identified at-risk groups. This utilises the pharmacist’s professional expertise and thus this service is exempt.

Support for Self-Care also involves providing patients with pharmaceutical advice about medicines and other products available over-the-counter. The pharmacist’s provision of advice will be exempt. Any medicines sold over the-counter will be a separate, standard-rated supply.

Support for People with Disabilities is extra support provided to patients in response to their assessed need, in order to facilitate their safe self-administration of medicines. This support is a requirement under the Disability Discrimination Act 1995 and ranges from special labelling of containers for use by visually disabled patients to MDS. This activity is a further aspect of the dispensing of prescribed medicines and is zero-rated where the medicines themselves are zero-rated.

Clinical Governance is not a supply for VAT purposes and its funding is outside the scope of VAT.

Thus of the six elements of the practice payment, five of these constitute payment for supplies attracting various different liabilities whilst the sixth is funding to support and encourage good quality delivery through the clinical governance requirements.

Accordingly, pharmacies needed to apportion the practice payment to reflect the different liabilities of the activities it supports.

Following the significant increase in the Practice Payment from October 2008, DH and HMRC revised the percentages used to apportion the payment for VAT purposes as follows:

Treatment Element Value to Sep 2008 script payments Value from Oct 2008 script payments
Standard rated Disposal of Medicines, Signposting 10% of Practice Payment 4% of Practice Payment
Exempt Promotion of Healthy Lifestyles, Support for Self-care 33% of Practice Payment 14% of Practice Payment
Zero rated Support for People with Disabilities 19% of Practice Payment 66% of Practice Payment
Outside scope Clinical Governance 38% of Practice Payment 16% of Practice Payment

Refunds and exit payments plus all payments for EPS are not payments for any supply made by the pharmacy and thus are outside the scope of VAT. You will need to talk to your accountant about becoming partly exempt if you aren’t already. HMRC Notice 706 explains the partial exemption rules in depth.

In the meantime if you require further information about any of the VAT liabilities discussed in this information sheet please ring HMRC’s National Advice Service on 0845 010 9000. You can call between 8.00 am and 8.00 pm, Monday to Friday.

HMRC website

HMRC Notice 701/57 Health professionals (November 2012) (incorporates the information from HMRC Notice 04/06 on liability of Essential and Advanced services)

VAT on pharmacy professional services

Professional services provided by a pharmacist or pharmacy technician are exempt services from a VAT perspective.

From 1st May 2023, the VAT exemption on medical services has been extended to include services undertaken by non-registered staff who are directly supervised by pharmacists. The Government said this change would bring the VAT treatment of pharmacists in line with other registered health professionals providing medical services to the public and it was a change that Community Pharmacy England had been seeking for many years.

We believe the extension of this VAT exemption will help pharmacy owners to make better use of the skill mix in their teams.

Read the HMRC note detailing the change to the VAT treatment of medical services

The change enables pharmacy owners, LPCs and service commissioners to review the VAT status of any locally commissioned services currently provided by non-registered pharmacy staff. Over time, it will also be used to amend nationally commissioned services to allow support staff to provide certain parts of the Advanced services.

Supplies made via Patient Group Directions

At the 2023 Spring Budget, the Government announced that it would extend the zero rate on medicines prescribed on prescriptions to medicines supplied under Patient Group Directions (PGDs).

HMRC subsequently announced that from 9th October 2023 to 31st March 2027, the VAT rate for supplies of medicines made to patients using a Patient Group Direction (PGD) would be set at the zero rate.

This change only applies to PGD supplies where the patient is given the medicine to use; it does not apply where the medicine is administered to the patient, for example vaccination services, including the flu vaccination service.

Read more about this on the HMRC website

For more information on this topic please email

Latest Funding & Reimbursement news

View more Funding & Reimbursement newsSee all