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Finance: How to maximise your VAT reclaims

GPs have seen reworking of the VAT rules. Faye Armstrong gives some guidelines on reclaiming your tax.

Last year the VAT allowance on dispensed drugs was phased out forcing more dispensing practices to register for VAT. Then in spring this year, new guidelines from HM Revenue and Customs on how GPs' income should be treated for VAT, greatly affected those already registered, many being dispensing GPs.

With the current period of relative calm all GPs, and particularly dispensing GPs can consider how VAT can work for them.

Practices can reclaim VAT on expenditure that relates to a VAT-able service or item supplied by the practice. So the proportion of VAT that a practice can reclaim depends on the proportion of practice income that comes from VAT-rated sources - both standard and zero - such as pre-employment medicals and dispensed drugs. The main 'VAT-able' income source for dispensing doctors will be dispensed drugs.

Calculating the VAT-able dispensing element
In order to calculate this VAT-able income, the practice must first split off the VAT-exempt administered drugs. When the drugs are reimbursed by the Prescription Pricing Division (PPD) of the NHS, the statement shows the VAT allowance on administered drugs, but does not list and value the administered drugs.

So the GPs must divide the figure as best they can, bearing in mind that the higher the value of dispensed drugs, the higher the VAT refunds can be claimed on practice expenditure.

GPs can use any method of apportionment that gives a fair result and so should choose the method that keeps exempt income as low as can be justified. There are three common methods.

One way is by using the drug reimbursement statement, practices can take the VAT allowance on administered drugs and use that to calculate the value of administered drugs. Remainder of the drugs reimbursement must then be for dispensed drugs.

A second option is to go through the drug purchase invoices and pick out administered drugs. This can be very time consuming, so is only likely to be a realistic method for smaller practices.

Finally, practices can take the information from the Prescribing Analysis and CosT (PACT), regular reports supplied by the PPD which gives details of drugs dispensed, and which identifies individual prescriber by a unique code.

How the VAT is apportioned on purchases
VAT can be reclaimed on 100 per cent of the cost of purchases made relating to VAT-rated income - both standard- and zero-rated - such as dispensing drugs and private medicals.

A proportion of the VAT can be reclaimed on expenditure for a mix of exempt, standard- and zero-rated income, such as facilities used both to treat NHS patients and patients attending for a private medical.

No VAT can be claimed when expenditure relates only to exempt income. So when apportioning expenditure between these categories, practices need to remember to move items from the 'no VAT reclaimed' category to the 'some VAT reclaimed' category if they find some dispensing use for the expenditure.

An example is refurbishment of the waiting room. The practice might think that this relates only to exempt income, but if the waiting room is used by patients waiting for dispensed drugs, or for pre-employment medicals on which VAT will be charged, then some VAT can be reclaimed on the expenditure.

GPs should also make sure to include expenses such as the office party, staff uniforms, employee subsistence expenses and mobile phones provided to employees into VAT calculations.

http://www.doddaccountants.co.uk

VAT rate of common income sources
Standard-rated - remember to charge VAT

  • Medicals done to assist legal claims.
  • Provision of character references.
  • Pre-employment medicals.
  • Drugs dispensed on a private prescription.
  • Paternity tests.

Zero-rated - do not charge, but do reclaim

  • Drugs dispensed on an NHS prescription.

Exempt

  • Most of global sum.
  • Administered drugs.
  • Locum work.
  • Employment medicals done to monitor health.

Outside the scope

  • Claims on the practice's insurance policy.
  • Compensation.
  • Donations from patients.
  • Most work done on an employed (rather than self-employed) basis.

To find out more call Jeff Lee on (01751) 430835 or visit http://www.dispensingdoctor.org.uk

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