VAT for GP practices: Exemptions, taxable supplies and registration requirements

The majority of the services provided by GP practices are exempt from VAT, which makes VAT feel straightforward at a glance. However, this exemption often raises questions about when VAT actually applies, when practices can reclaim it, and how taxable activities fit into the picture.

GPs regularly ask whether they can recover VAT, how taxable supplies are defined, and what the VAT registration means in practice. The rise of shared staffing arrangements within Primary Care Networks (PCNs) has added another layer of complexity, particularly under the updated 2025/26 Network Contract DES.

This article breaks down the key VAT rules for GP practices and PCNs, including exempt and taxable services, partial exemption, and the VAT considerations that come with shared workforce models and evolving PCN structures.

Can GP practices reclaim VAT?

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. At present, mandatory registration is required when the value of taxable supplies exceeds the current annual turnover threshold of £90,000.

Taxable services commonly provided by doctors

Services not directly related to the protection or restoration of a patient’s health are often taxable, including:

Providing professional witness evidence.
Paternity testing and other laboratory analysis services unrelated to medical care.
Clinical trials or market research services for drug companies that do not involve the care or assessment of a patient.
Medico-legal services that are predominantly legal rather than medical e.g. negotiating on behalf of a client or appearing in court in the capacity of an advocate.
Signed passport applications.
Drugs, medicines or appliances that are dispensed by doctors to patients for self-administration.
Zero-rated: drugs dispensed on NHS prescriptions.
Standard-rated: drugs dispensed privately.

These taxable activities can enable VAT registration and potential VAT recovery.

What VAT registration means for GP practices

Once registered:

You must file a VAT return on a monthly or quarterly basis.
You may need to charge 20% VAT on some services and issue certain documentation to patients or organisations to whom you make VATable supplies.
You can reclaim VAT on eligible purchases and other expenditure, subject to partial exemption rules.
Accurate record-keeping and compliant accounting systems become essential.

Because healthcare services have varying VAT treatment, practices should split VAT incurred between taxable, exempt and overhead categories. Generally, only VAT related to zero-rated and standard-rated services are recoverable.

Related reading: “How do I manage VAT?”

Partial Exemption

Additionally, there will always be input tax which is not attributable to any specific service and is “overhead” e.g. 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.

Once the calculations described above have been carried out, the amount of input tax for exempt supplies is compared to the de-minimise limits. This should generally equate to £625 per month in VAT and no more than 50% of total 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: Benefits and drawbacks

Benefits

Recovery of input VAT; the cost of which is not claimable in any other way.
Potential 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.

Drawbacks

Increased administration, paperwork and staff time.
Exposure to VAT penalties and interest.
May require VAT to be added to some services which were previously exempt.
Likely that only an element of input tax is recoverable because of partial exemption.
Uncertainty on the VAT position of certain services due to evolving case law and HMRC interpretation.
Potential increased costs for the practice in professional fees.

VAT for Primary Care Networks (PCNs)

The VAT treatment for Primary Care Networks is crucial to ensuring they operate as smoothly and cost efficiently as possible. For many GPs working collaboratively, VAT continues to present a significant administrative burden. Established in 2019, PCNs were created to enable practices to deliver more comprehensive, community focused services while reducing pressure on individual practices. By 2024, over 99% of general practices in England were part of a PCN, reflecting the near universal participation formalised through the Network Contract Directed Enhanced Service (DES).

PCNs have continued to evolve under the updated Network Contract DES arrangements, with substantial specification changes introduced from April 2025. These include expanded ARRS (Additional Roles Reimbursement Scheme) workforce roles and greater flexibility in how PCNs can deploy and fund staff, helping networks tailor their workforce more effectively to local needs.

Most healthcare services remain exempt from VAT, including those delivered by GP practices, except for dispensing activities. This exemption applies to services defined as “medical care by a registered health professional” and the supply of “welfare services.” However, VAT challenges arise when resources such as staff are shared across a PCN to support individual practices. When PCNs were first established, most networks employed only a small number of staff, and combined with their limited taxable supplies, they remained below the VAT registration threshold.

Under the updated 2025/26 Network Contract DES, PCNs now operate with expanded ARRS workforce roles and greater flexibility in deploying staff, leading to increased staff sharing and more complex cross practice arrangements. As a result, some PCNs may now be at greater risk of exceeding the £90,000 taxable threshold and triggering mandatory VAT registration.

Looking ahead: The future of PCNs

Although the original five-year PCN framework ended in March 2024, PCNs continue under revised DES specifications for 2025/26. As part of the 10 Year Plan, PCNs will evolve into larger “single neighbourhood providers” and “multi-neighbourhood providers” with wider responsibilities and integrated workforce models. These structural changes may have future VAT implications for shared services. Our team can help PCNs navigate these changes by providing clear, practical guidance on managing VAT implications and choosing efficient structures for shared services.

Closing thoughts

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 PCNs, and each one should consider gaining expert advice tailored to their own individual circumstances. As PCNs are continuing to grow in responsibility and member numbers, the complexities involved with management and administration are equally increasing.

This option may also become more relevant as PCNs transition towards larger neighbourhood-based services models from this year onwards.

If you have any questions related to VAT in the healthcare sector, speak to our experts for tailored advice using the form below.

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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