Published on: 12th September 2014 | Updated on: 24th March 2022

December 2016 Funding Imposition

Following the community pharmacy funding imposition, PSNC is in discussion with HMRC about 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.

Guidance will be issued to contractors as soon as the VAT treatment of the fees is determined.  Until we have received a reply from HMRC we are unable to advise contractors how to account for VAT.

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

We have stressed to HMRC our wish for an early decision on the SAF and other elements of the imposition such as Quality payments, PhAS payments and NUMSAS.

Pre December 2016 guidance

HM Revenue and Customs (HMRC) has issued guidance on the VAT status of the national contract payments. Details can be found in Notice 701/57 on the HMRC website.

HMRC Guidance

Where dispensing or repeat dispensing is undertaken by a registered pharmacist, against a prescription issued by a doctor, dentist or nurse, that activity is currently zero-rated for VAT purposes. 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 consult the Information Sheet referred to above.

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

If any updated information regarding the percentages to be used in the VAT apportionment is confirmed we will post this information on our website and share guidance for pharmacies via our email newsletter.

Advanced services use the professional expertise of pharmacists and thus are exempt services.

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.

Links to HMRC website

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)

PSNC Briefing 083/13: Enhanced Services VAT and Lloyds Bank Interest Rates (August 2013)

This briefing provides an overview of VAT for LPCs, particularly on Enhanced Services, and highlights a change to the collective LPC banking arrangements with Lloyds Bank.

For more information on this topic please email

Latest Funding & Reimbursement news

View more Funding & Reimbursement newsSee all