For dispensing GP practices

Are you recovering all the VAT you are entitled to?

Seven questions you can answer from memory. No logins, no exports, nothing to download. Built on HMRC's own guidance in VAT Notice 701/57.

A dispensing practice makes three kinds of supply, and they are treated very differently. Dispensing on NHS prescription is zero-rated, so the VAT on the costs behind it is recoverable. Medical services are exempt, so the VAT on those costs is not. Some statutory work is outside the scope altogether, and the VAT on that is not input tax at all. Getting the lines between them right is where the money is — in both directions.
Question 1

Roughly what is the practice's total annual income?

Everything — global sum, enhanced services, dispensing, the lot. A round number is fine.

Question 2

Of that, roughly how much is dispensing income?

The zero-rated side — items dispensed on NHS prescription and taken away by the patient.

Question 3

Roughly how much VAT do you pay out each year on costs?

Include the VAT your wholesaler charges you on drug purchases — usually the largest single item — plus overheads, equipment, software, repairs and professional fees. If you are unsure, leave blank.

Question 4

Are drugs you administer separated from drugs you dispense?

This is the one that catches practices out. A drug dispensed for the patient to take away is zero-rated, so the VAT on it is recoverable. A drug you inject, apply or administer during treatment is part of an exempt supply, and that VAT is not recoverable. If the two are not separated, your return is wrong in one direction or the other.

Question 5

Are the general NHS payments apportioned between taxable and exempt?

Global sum, MPIG correction factor, computer costs and notional rent. In a non-dispensing practice these relate wholly to exempt supplies. In a dispensing practice they cover both, and HMRC expects them to be apportioned.

Question 6

Is the partial exemption annual adjustment done each year?

Quarterly recovery percentages are provisional. The year-end recalculation corrects the year as a whole, and it is a requirement rather than an option.

Question 7

Do you engage locum GPs through an agency?

HMRC set out its position on the VAT liability of temporary medical staff in Revenue and Customs Brief 6 (2026). Where the treatment of past invoices changes, a VAT-registered practice has to deal with it through its returns.