HMRC internal manual

VAT Health

VATHLT6120 - Dispensing by a pharmacist: Scope of the zero rate

a. Community pharmacies

Most dispensing in a traditional high street retail pharmacy is zero rated under item 1 or one of the concessions outlined in VATHLT6070 and VATHLT6080. Hospitals or nursing homes that do not have their own pharmacy (e.g. a cottage hospital or a specialist clinic) usually obtain qualifying goods from a high street pharmacist. Supplies to them by the pharmacist will normally be standard-rated. When dealing with hospitals and nursing homes, pharmacists may only zero-rate the dispensing of prescribed qualifying goods if the goods are for an individual named patient and they are satisfied that either:

  • the goods will not be used while the patient is within the institution; or
  • one of the concessions outlined in VATHLT6070 and VATHLT6080 applies.

Where a pharmacist is called on to supply prescription-only medicines in an emergency, the zero rate will apply if these emergency supplies are made on the direction of a doctor and if the doctor provides a prescription within 72 hours. If the request for an emergency supply is made by a patient, then the conditions of item 1 are not met (because the goods are not supplied on the prescription of a doctor) and so the supply cannot be zero-rated.

b. Hospital pharmacies

Where an NHS hospital pharmacy supplies qualifying goods to out- or discharged patients as part of the NHS’s statutory obligation of care, this is not a business supply for VAT purposes. Other than this, hospital pharmacies may zero rate dispensing of qualifying goods to out- or discharged patients for their personal use, including dispensing by:

  • pharmacies in private hospitals;
  • independent pharmacies situated in NHS hospitals (e.g. where the pharmacy is run by a private company) ( see c below) ; or
  • NHS hospital pharmacies dispensing to private patients.

c .External pharmacy companies in NHS hospitals

To improve services to patients, a hospital may enter into a contract with a third party pharmacy company to operate a pharmacy in the hospital to dispense qualifying goods to out-patients. The same criteria for zero-rating applies to pharmacy companies within a hospital as to normal community pharmacies.

If such an arrangement is entered qualifying goods can only be zero-rated if they meet all the conditions listed in VATHLT6020 above.

Drugs administered to the patient whilst they are an in-patient or attending a hospital clinic are not covered by the zero-rating provision.

Where a pharmacy company has a contract to operate a pharmacy in an NHS hospital pharmacy a typical system will operate as follows:

  • A hospital consultant / doctor will issue a prescription to a patient.
  • The patient will take the prescription to the pharmacy where their qualifying goods will be dispensed by a pharmacist.
  • The patient will take the qualifying goods home and self-administer.
  • The pharmacy company will invoice the hospital for the goods dispensed and the dispensing fee. These will both be zero-rated as with a community pharmacy.

Any other charges made (e.g. management or administrative) will follow their normal VAT liability as they are not covered by the zero-rating provisions for qualifying goods.