Introducing a new VAT zero rate to extend the scope of patient group directions
Published 18 September 2023
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Who is likely to be affected
Registered pharmacists, pharmacy technicians and National Health Service (NHS) Trusts.
General description of the measure
This measure will bring the Value Added Tax (VAT) treatment of medicines supplied under patient group directions in line with medicines dispensed under a prescription. The zero rate will apply from 9 October 2023 until 31 March 2027.
Policy objective
Under current VAT legislation, a zero rate of VAT applies for supplies of drugs and medicines dispensed to an individual for personal use, where they are dispensed under a prescription from a registered health professional. However, the zero rate does not currently include drugs and medicines supplied under a patient group direction.
A patient group direction is a written instruction that allows healthcare professionals to supply and administer specified drugs and medicines to a pre-defined group of patients without a prescription.
This measure will align the VAT treatment, by including drugs and medicines supplied under patient group directions within the scope of the zero rate.
This measure will help to reduce costs for the NHS, ensure the tax system keeps pace with changes to healthcare delivery, and is in line with the government’s commitment to ease pressure on General Practitioners (GPs).
Background to the measure
At Spring Budget 2023, the government announced that it would extend the zero rate to drugs and medicines prescribed on prescriptions to drugs and medicines supplied under patient group directions. The instrument is a simple change that is wholly relieving in nature and has been designed so there will be an opportunity to review its impact.
Detailed proposal
Operative date
This measure will have effect from 9 October 2023 to 31 March 2027.
Current law
Under current provisions of the VAT Act 1994 a standard rate of 20% VAT applies to drugs and medicines supplied under patient group directions. Group 12 of Schedule 8 to the VAT Act 1994 provides for the zero-rating of matters relating to drugs, medicines, aids for the disabled etc. Section 30(4) and 96(9) of that Act give HM Treasury powers to make an order to amend the scope of that group.
Proposed revisions
A zero rate will be introduced into Group 12 of Schedule 8 to the VAT Act 1994, by way of a modification of that group. The zero rate will apply from 9 October 2023 until 31 March 2027. The effect of that modification is that Group 12 is to be read as if a new Item 1A and relevant notes were temporarily inserted, which provide that supplies of drugs and medicines made in accordance with a patient group direction are subject to the zero rate of VAT.
Summary of impacts
Exchequer impact (£ million)
| 2022 to 2023 | 2023 to 2024 | 2024 to 2025 | 2025 to 2026 | 2026 to 2027 | 2027 to 2028 |
|---|---|---|---|---|---|
| — | — | –5 | –5 | –5 | –5 |
Economic impact
This measure is not expected to have any significant macroeconomic impacts.
Impact on individuals, households and families
There is expected to be no impact on individuals, family formation, stability or breakdown. The measure only affects businesses.
Equalities impacts
It is not anticipated that this measure will impact those groups with protected characteristics and is compliant with section 149 of the Equality Act 2010.
Impact on business including civil society organisations
This measure is expected to have a positive effect on community pharmacies across the United Kingdom. These pharmacies can supply medicines to individuals under a patient group direction, which will help reduce costs for the NHS, ensure the tax system keeps pace with changes to healthcare delivery, and is in line with the government’s commitment to ease pressure on GP services.
One-off costs may include familiarisation with the changes or updating software to enable drugs and medicines supplied under a patient group direction to an individual for their personal use to be treated as zero-rated. There are not expected to be any continuing costs.
Customer experience is expected to remain broadly the same as it does not significantly alter how businesses would interact with HMRC.
This measure is not expected to impact civil society organisations.
Operational impact (£ million) (HMRC or other)
Costs to HMRC of implementing this change are expected to be negligible.
Other impacts
Other impacts have been considered and none have been identified.
Monitoring and evaluation
HMRC will review the impacts of the measure ahead of the end date in March 2027.
Further advice
If you have any questions about this change, please contact Imran Kalam: imran.kalam@hmrc.gov.uk.
Declaration
Victoria Atkins MP, Financial Secretary to the Treasury has read this tax information and impact note and is satisfied that, given the available evidence, it represents a reasonable view of the likely costs, benefits and impacts of the measure.