VAT for Doctors explained: Registration, exemption and benefits

The majority of the services provided by doctors’ practices are VAT free. Good news one would think; no need to charge VAT and no need to deal with VAT returns and inspections. 

However, there is one often repeated question from practices…

“How can we reclaim the VAT we are charged?”

The first point to make is that if a practice only makes exempt supplies (of medical services) it is not permitted to register for VAT and consequently cannot recover any input tax.

Therefore we must look at the types of supplies that a practice may make that are taxable (at the standard or zero rate).

If any of these supplies are made it is possible to VAT register regardless of the value of them.

Of course, if taxable supplies are made, the value of which exceeds the current turnover limit of £90,000 pa. Registration is mandatory.

Examples of services and goods which may be taxable are:

  • Drugs, medicines or appliances that are dispensed by doctors to patients for self-administration
  • Dispensing drugs against an NHS prescription is zero-rated
  • Drugs dispensed against private prescriptions are standard-rated
  • Signing passport applications
  • Medico legal services that are predominately legal rather than medical – for example negotiating on behalf of a client or appearing in court in the capacity of an advocate
  • Clinical trials or market research services for drug companies that do not involve the care or assessment of a patient
  • Paternity testing
  • Providing professional witness evidence
  • Any services which are not in respect of; the protection, maintenance or restoration of health of a patient

So what does VAT registration mean?

Once you join the “VAT Club” you will be required to file a VAT return on a monthly of quarterly basis.

You may have to issue certain documentation to patients/organisations to whom you make VATable supplies. You may need to charge VAT at 20% on some services.

You will be able to reclaim VAT charged to you on purchases and other expenditure subject to partial exemption rules (see below). You will have to keep records in a certain way and your accounting system needs to be able to process specific information.

Related reading: “How do I manage VAT?”

Because doctors usually provide services which attract varying VAT treatment, a practice will be required to attribute VAT incurred on expenditure (input tax) to each of these categories. Generally speaking, only VAT incurred in respect of zero-rated and standard-rated services may be recovered.

In addition, there will always be input tax which is not attributable to any specific service and is “overhead” eg; property costs, professional fees, telephones etc. There is a set way in which the recoverable portion of this VAT is calculated. VAT registered entities which make both taxable and exempt supplies are deemed “partly exempt” and must carry out calculations on every VAT return.

Partial Exemption

Once the calculations described above have been carried out, the resultant amount of input tax which relates to exempt supplies is compared to the de-minimise limits (broadly; £625 per month VAT and not more than 50% of all input tax).

If the figure is below these limits, all VAT incurred is recoverable regardless of what activities the practice is involved in.

VAT registration in summary


  • Recovery of input tax; the cost of which is not claimable in any other way
  • Potentially, recovery of VAT on items such as property, refurbishment and other expenditure that would have been unavailable prior to VAT registration
  • Only a small amount of VAT is likely to be chargeable by a practice
  • May provide opportunities for pre-registration VAT claims


  • Increased administration, paperwork and staff time
  • Exposure to VAT penalties and interest
  • May require VAT to be added to some services provided which were hitherto VAT free
  • Likely that only an element of input tax is recoverable as a result of partial exemption
  • Uncertainty on the VAT position of certain services due to current EC cases
  • Potential increased costs to the practice in respect of professional fees

VAT for primary care networks (PCN’s)

The VAT treatment for PCN’s is crucial in ensuring that a PCN operates as smoothly and cost-efficiently as possible. For many GP’s working collaboratively it provides a great deal of administrative burden when concerning VAT. Established in 2019, Primary Care Networks have been growing in popularity due to their ability to provide communities with a more comprehensive service with a reduced strain on individual practices; now 99% of GP services are part of a PCN and bring GP services together to work at scale.

Most healthcare services are exempt from VAT, except from those dispensing practices; this means that the healthcare services delivered by each GP practice will remain exempt from VAT. Exemptions apply to the provision of “medical care by a registered health professional”, as well as the supply of “welfare services”. However, a VAT issue arises on the shared resource which is used across the PCN to support the activities of individual GP practices, such as the supply of staff. When PCN’s were first introduced, most PCN’s had a small number of staff employed within the PCN’s structure, often therefore combined with their other VATable supplies they did not reach the VAT threshold. Now due to an increase in the sharing of staff and services PCN’s may be in a position where they would breach the VAT threshold (£90,000) and be subject to VAT.

There are multiple options PCN’s should consider in minimising the VAT charges on the supply of staff.

  1. Employing staff on joint employment contracts.   

    This removes the VAT issue associated with the ‘supply’ of staff as the joint employment contract makes them shared staff. However, employment responsibilities and legal ramifications will need careful consideration.

  2.  Employing staff through your local Federation.

    Many PCNs are employing staff through their federations, especially those federations with contracts, as they are already registered as NHS bodies for pension purposes. Consequently, the federation oversees all staff and manages their administration accordingly.

  3. Sharing staff amongst member practices.

    In this scenario, the practice nominated as the payee for the PCN reimburses any practice that employs a staff member belonging to the PCN. If the combined expenses for staff salaries, processed through each member practice’s payroll, along with any other taxable services, remain below the VAT threshold of £90,000, there is no obligation to register for VAT despite the provision of staff services. Other taxable services may involve medico-legal work, for example.

  4. Starting a VAT cost sharing group company.

    In setting up a limited company with each member practice holding shares, the staff would be employed under the company’s payroll. Provided all the strict VAT cost sharing group conditions are met, there would be no VAT liability. This needs careful planning with experts from an accounting and legal perspective to ensure the company is set up correctly, and meets the conditions required to negate the VAT exposure.

Seeking expert advice can help reduce the danger of falling victim to potential VAT liabilities and can also ease the administrative burden associated with restructuring. There is no ‘easy’ or ‘correct’ option when evaluating the VAT complexities within PCN’s and each PCN should consider gaining expert advice on their own individual circumstance. As PCN’s are continuing to grow in responsibility and member numbers, the complexities involved with management and administration are equally increasing.

The future of PCN’s

The initial five-year life span for Primary Care Networks finished on 31 March 2024 and we will update accordingly on any changes released by NHS England and how they may affect you. Our team can assist with supporting PCN’s by relieving the business and financial pressures associated with managing a PCN.

Should you have any questions relating to content within this article or would like to discuss how we can assist you further, please use the form below to contact one of our experts…


We always recommend that you seek advice from a suitably qualified adviser before taking any action. The information in this article only serves as a guide and no responsibility for loss occasioned by any person acting or refraining from action as a result of this material can be accepted by the authors or the firm.


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