If you are a community pharmacy owner in England and Wales, like any other business you need to worry about the taxes and VAT issues. Usually, you appoint an accountant to shift these headaches as you already have plenty on your plate. However, sometimes it is good to have a basic idea about these issues to understand why you are appointing an accountant and are they doing what they are supposed to do.
Like any other business, community pharmacies need to pay tax on their net profit. The business will pay either income tax or corporation tax depending on the structure you choose to run your business. Net profit is calculated after deducting all the expenses from the turnover of the pharmacy. So make sure all expenses are claimed and no income is double-counted. This includes any expenses you paid from your pocket on behalf of your business. Try to maintain one bank account for both income and expenses which will make the accountant’s life much easier to pick all business transactions and you are at less risk of under or overpaying tax.
If you choose a company structure for your business, the company will pay corporation tax on the net profit of the company and you will pay income tax on the income you received from the company or any other sources.
The next thing to worry about is the VAT. A community pharmacy is a retail business. So they fall under the retail VAT scheme. Any drugs sold on NHS prescription are zero-rated for VAT purposes and any medical treatment or services provided are exempt. However, some of the supplies which do not require any prescription (OTC sales) might either be exempt, zero-rated, reduced rated or standard rated. So, this part of the supply requires some apportionment if the POS system does not pick the right category of VAT. Additionally, there is a another adjustment required called retail chemist adjustment. This is due to different rates of VAT paid on purchase for some prescribed goods included in VAT Group 12.
Usually, community pharmacies can claim the VAT that they pay for the purchase of their goods and services. As a result, VAT calculation usually ends up with a repayment of VAT. So for a community pharmacy, it is advisable to submit VAT returns monthly so that their cash flow keeps revolving.
And finally, it’s the employer’s National Insurance (NI); the additional cost for employing staff. The tax and NI for employees are deducted from their pay. But you need to pay the employer’s NI if employees’ pay reaches NI free threshold. However, the employment allowance will reduce this NI cost for employers (currently £4,000). You need to pay the total of employees’ tax and NI and net employer’s NI to HMRC, either monthly or quarterly. Do not forget the pension cost you need to contribute if employees want to opt-in for the Workplace pension.
A few general pieces of advice to increase your bottom line figure:
- Try to fulfill your MUR quota and maximise NMS. There is no cost in providing these services and it will increase your gross profit margin.
- Shop around for your stocks and use available software to stay up-to-date with drug prices.
- Increase electronic prescription sign-ups to secure business.
- Make sure you do not miss out claiming any expensive drugs in FP34.
- Confirm all referred back forms are submitted.
- Claim Out of pocket expenses which may involve delivering or collecting drugs.
- Try to maximise flu jab quota during the season.
There are quite a lot to take but at the end of the day, this is your business and your profit. So sometimes you need to roll up your sleeves and sit with your accountant to make sure you are getting the maximum out from your business.