Your biggest debtor is the NHSBSA, and it pays two months late

Two months of dispensing sits in debtors before anyone pays for it

The FP34C goes to the NHS Business Services Authority through the Manage Your Service portal by the 5th of the month, the 6th if a bank holiday falls in the first five days; a late paper bundle can attract a £25 administrative deduction. An estimated advance then arrives on the 1st, covering prescriptions dispensed two months earlier, with the priced reconciliation roughly two months after submission. The stock left the shelf long before that, and the wholesaler was paid on its own terms.

The Pharmacy Earlier Payment Scheme, financed privately through Taulia and facilitated by the NHSBSA, pulls the advance to the 8th or the 12th — seven or eleven days, at a cost worth modelling.

The advance is an estimate, and last month's is being taken back

The advance is declared items multiplied by an Average Item Value the NHSBSA derives, and the same schedule recovers the previous month's advance and any balance carried forward. One payment therefore holds this month's guess, last month's correction and the priced value of a third month. Sent to one sales code it stops describing the pharmacy. Dispensing income belongs in the month it was earned, the advance on account against an accrued NHSBSA debtor.

The discount deduction is not a discount you negotiated

The drugs and appliances total is shown before the discount deduction, applied at 20% on generics, 5% on branded items and 9.85% on appliances. It is the NHS assuming you bought well; netted silently against income, it hides whether you did.

Reimbursement is reset quarterly by committee, not by your purchase invoice

Category M entered the Drug Tariff in April 2005 and sets reimbursement for more than 600 generic medicines, reset quarterly from manufacturer price and volume data alongside dispensing volumes. Prices are fixed ahead of the quarter on estimated volumes, corrected in later quarters. It is how the Department of Health and Social Care delivers retained buying margin — £1,100m of the £3.636bn core contract funding for 2026/27 — a target set for the sector, not for your business.

Where a line cannot be bought at tariff, DHSC grants a concession for that month only: 104 for September 2026 alone. Purchase and reimbursement prices run on different clocks, so a margin reported without the tariff beside it is noise.

One till, four VAT treatments

Dispensing a qualifying medicine on the prescription of a relevant practitioner is zero-rated under Schedule 8, Group 12, Item 1 of the VAT Act 1994, on the conditions at section 3.2 of VAT Notice 701/57. A medicine sold across the counter is a separate standard-rated supply, and the pharmacist's advice on self-care is exempt. Medicines supplied under a Patient Group Direction for the patient to take away are zero-rated until 31 March 2027, which does not extend to an administered service such as a flu vaccination. Pharmacy Quality Scheme and Pharmacy Access Scheme payments are outside the scope of VAT.

Exempt supplies put the business into partial exemption, so input tax is restricted under Notice 706 rather than reclaimed in full. The usual failure: EPOS departments mapped once by whoever set the till up, never revisited, leaving a counter line coded as dispensing.

Stock, rebates, locums and the register

Stock is usually the biggest figure on the balance sheet and, too often, last year's with a percentage on it. It feeds cost of sales directly, so an estimate there is an estimate of the profit: short-dated lines, fridge lines and a bulk buy against a lapsed concession all land in margin. FRS 102 carries inventories at the lower of cost and estimated selling price less costs to complete and sell; the count behind it matters more here than almost anywhere.

Buying-group rebates and retrospective volume discounts relate to purchases already made. Booked as other income when the credit lands, they flatter one month, overstate cost of sales in the others and leave stock at a cost you did not pay. They belong against the goods, accrued as earned.

A pharmacy cannot open without a responsible pharmacist, so locum cover is the price of the door being open, not a discretionary overhead. Locum fees, permanent salary and agency commission want separate codes, or nobody can say whether filling a vacancy beats covering it.

Schedule 2 and certain Schedule 3 controlled drugs require a register, kept at least two years from the most recent entry under the Misuse of Drugs Regulations 2001. Running-balance checks, witnessed destruction and the audit time around them are staff hours that vanish into one wages line, so the dispensary looks cheap to run.