VAT is a long‑standing challenge for primary care providers. While the majority of GP services are VAT‑exempt, practices still incur significant VAT on running costs, staffing, premises, and digital investment.
With HMRC increasing its scrutiny of VAT structures across the healthcare and care sectors, it has never been more important for GP practices, federations, and Primary Care Networks (PCNs) to understand their VAT position and ensure it is both compliant and efficient.
Why most GP services are VAT exempt
In the UK, medical services provided by registered healthcare professionals are generally exempt from VAT when they are carried out for the purpose of protecting, maintaining, or improving a patient’s health.
This exemption typically covers:
- GP consultations and appointments
- Diagnostic and treatment services related to patient care
- Prescribing and ongoing clinical care
However, VAT exemption comes with an important limitation: where income is exempt, the VAT incurred on related costs cannot usually be reclaimed. This commonly affects expenses such as:
- Locum and staffing costs
- Medical equipment and supplies
- Practice overheads and premises costs
As a result, VAT can become a hidden cost when practices invest in refurbishment projects, digital systems, workforce expansion, or new premises.
Services that are not VAT exempt
Not all income generated by GP practices qualifies for exemption. In particular, private, non‑clinical, or non‑therapeutic services may fall outside the exemption and attract VAT.
Common examples include:
- Cosmetic or non‑therapeutic procedures (standard‑rated)
- Certain travel vaccinations (where they are not clinically required for the protection of the patients health)
- Medical reports, insurance work, or occupational health services
In contrast, some supplies may be zero‑rated rather than exempt. This can include medicines supplied under Patient Group Directions (PGDs), subject to specific conditions. A temporary extension of zero‑rating for PGD‑supplied medicines is currently in place (scheduled to run until March 2027 under current legislation).
Getting this distinction wrong can be costly. Charging VAT when you shouldn’t, or failing to charge it when you should, can result in HMRC assessments, penalties, and interest.
Increased HMRC focus on VAT structures
HMRC has significantly increased its focus on VAT arrangements used across the care sector, particularly VAT grouping and shared service models. While most individual GP practices do not operate VAT groups, these structures are sometimes used by federations, provider companies, or organisations supporting PCNs, especially where staff or services are shared.
It is important to note that PCNs themselves are not legal entities and cannot register for VAT. Any VAT responsibilities sit with the lead practice, federation, or provider company acting on the PCN’s behalf.
Where structures are poorly designed or no longer fit for purpose, they can attract HMRC challenge. Reviewing existing arrangements proactively can help prevent disputes and unexpected VAT liabilities.
VAT and staff sharing arrangements
Staff sharing has become increasingly common, particularly under the Additional Roles Reimbursement Scheme (ARRS). However, the VAT treatment of staff supply depends on how those staff are used and how the arrangement is structured.
As a general rule:
- Exempt: Clinical staff directly delivering patient care where the supply meets the medical exemption and reflects the contractual and operational arrangements in practice
- Standard‑rated: Non‑clinical staff, or clinical staff not directly providing care
Arrangements that often need careful assessment include:
- Pharmacists or physiotherapists working across multiple practices
- Paramedics employed by a PCN but deployed to individual surgeries
- Administrative or management teams supporting several sites
Incorrect VAT treatment in these areas can quickly lead to large, unexpected VAT bills.
Why VAT risk is increasing for GP Practices
VAT in primary care is becoming more complex due to several factors, including:
- The growth of PCNs, federations, and collaborative working
- Greater HMRC enforcement around VAT recovery and grouping
- Ongoing confusion around zero‑rating for medicines and supervised services
- Expansion of private income streams such as travel clinics, medicals, and minor surgery
Together, these factors increase the risk of errors and HMRC is now more likely to challenge arrangements than in the past.
Failing to apply the correct VAT treatment may result in HMRC:
- Assessing undercharged VAT
- Demanding repayment of VAT claimed incorrectly
- Charging penalties and interest
- Challenging staff‑sharing or service delivery models
How Xeinadin can help
Our services include:
- VAT liability reviews
- PCN and federation VAT structure advice
- Staff supply VAT assessments
- VAT recovery strategies
- HMRC enquiry support
- Training for managers and partners
About the author
Natalie Sherwood
Natalie has specialised in the Healthcare industry for over 10 years with more than 25 years’ experience in personal tax. She is the trusted advisor to many of Xeinadin’s GP and Medical clients, supporting them with tax matters (including McCloud remedy considerations and Annual Allowance tax charges) and other complex issues at every step of their financial journey.
Connect with the author on LinkedIn: Natalie Sherwood | LinkedIn
Contact Us
Our healthcare specialist accountants support GP practices, PCNs, federations, and provider groups with tailored VAT advice designed to reduce risk and improve efficiency.
