Funding
Published on: 15th February 2022 | Updated on: 7th October 2026
Community pharmacy funding is complex but can be loosely broken down into fees for the services they perform and profit they are allowed to keep after shopping around for the best prices for drugs.
Community pharmacies receive around 90% of their income from the NHS and what they do receive has to fund their premises, staff and all other operating costs. Inflation in recent years has led to higher costs for pharmacies and their workload has increased significantly as people have struggled to access other healthcare providers.
The 2026/27 settlement sees the community pharmacy funding budget increased by 10.3% in this financial year to £3.636 billion, alongside the introduction of Independent Prescribing into some pharmacy services later in the year. It also includes measures aimed at helping to stabilise the increasingly volatile medicines supply chain.
While the funding uplift is welcome, many community pharmacies will remain in financial peril. Pharmacies’ workload will rise over the next year as prescription volumes continue to grow and service changes are introduced, and their costs are also rising every year due to inflation and other pressures. This settlement will not address community pharmacy’s £2 billion funding gap as identified by an independent economic analysis undertaken for NHS England.
Recognising this, Community Pharmacy England is pleased that Government has committed to working with us on a programme of reform. This work will be challenging, but critically important to set the future strategy for community pharmacy and put the sector on a long-term sustainable footing.
Guides and explainers
Click a heading below for more information.
National NHS community pharmacy funding (the ‘contract sum’) comprises two key elements – fees (remuneration) and retained margin (part of reimbursement) which can be defined as follows:
- Remuneration: This is the fees and allowances paid to pharmacies for the professional services they provide.
- Reimbursement: This reimburses the cost of the medicines that pharmacies supply to patients. Pharmacies first must purchase these medicines, usually from medicines wholesalers, and they are then reimbursed for them by the NHS, generally according to the Drug Tariff, which sets out prices for many medicines and a ‘discount deduction’ scale.
The difference between reimbursement and purchase price constitutes ‘retained margin’ which pharmacies are allowed to keep as part of their agreed funding subject to a collective agreed total (£900m in 2025/26).
The ‘fees’ or ‘remuneration’ element of funding covers a number of services and their associated fees. All fees and allowances are funded from NHS England budgets.
Every community pharmacy, whether it is a distance selling pharmacies or located within a local community, is paid according to the same Community Pharmacy Contractual Framework (CPCF) – this is the framework which sets out all the services that they must provide for the NHS – and with the same fees. These include:
Single Activity Fee (SAF): The SAF is a payment made per prescription item dispensed. This fee is paid to pharmacies each time they dispense a prescription item to a patient. Prescription volumes and associated fee levels are kept under constant review by the Department of Health and Social Care (DHSC) and Community Pharmacy England to ensure the full delivery of funding agreed under the CPCF.
Services: In addition to the core services, there are a growing number of other clinical services within the CPCF. As of April 2025, there are the following:
- Pharmacy First service;
- New Medicine Service;
- Discharge Medicines Service;
- Hypertension Case-Finding service (also known as the NHS Blood Pressure Checking Service);
- Pharmacy Contraception Service;
- Flu Vaccination Service;
- Smoking Cessation Service;
- Lateral Flow Device Service;
- Appliance Use Reviews; and
- Stoma Appliance Customisation.
Community pharmacies can choose to provide any of these services as long as they meet the requirements set out in the Secretary of State Directions, with the exception of the Discharge Medicine Service, which is a mandatory Essential Service. Note, funding for the Flu Vaccination Service comes from NHS England’s Section 7A public health budget, and funding for the COVID-19 related services comes from other public health budgets.
2A-2F Fees: This refers to Part IIIA of the Drug Tariff, where a number of professional fees are described. These are payments to cover the dispensing of specific products such as unlicensed medicines, certain appliances, oral liquid methadone, Serious Shortage Protocols (SSPs), Schedule 2 and 3 Controlled Drugs, and expensive items.
Pharmacy Quality Scheme (PQS): This scheme makes payments to community pharmacies that are meeting Gateway and Quality criteria. Payments are made to eligible pharmacies depending on how many of the Quality criteria they have met (the number of ‘points’ earned).
Pharmacy Access Scheme (PhAS): PhAS is a scheme with the stated aim of ensuring that a baseline level of patient access to NHS community pharmacy services is protected. Qualifying pharmacies receive an additional payment.
Purchase margin is the margin made when pharmacies are able to purchase medicines for NHS patients at prices below those at which the NHS reimburses them for those medicines. This is also known as ‘retained margin’ and it is measured annually with a ‘Margins Survey’ jointly conducted by DHSC, the NHS and Community Pharmacy England.
Monitoring the value of the purchase margin being delivered to pharmacies is complex: in each financial period Community Pharmacy England and DHSC agree a figure based on the results of the Margins Survey. This survey examines prices paid for a representative sample of medicines by a number of independent community pharmacies, and analyses prices and wholesaler discounts gathered from invoices collected from pharmacies to estimate how much margin has been made during the year.
The Margins Survey is carried out retrospectively and the results from the survey are used to inform changes to the Drug Tariff, in order to ensure the correct delivery of margin to the community pharmacy sector.
For more information on this topic please email comms.team@cpe.org.uk
