Taxpayers subsidising private pharmacies?
It looks as though the UK Government is subsiding private healthcare companies by allowing them to claim back VAT. And this is possibly illegal under EU regulations.
A VAT loophole has led to the absurdity of NHS hospitals closing down their own pharmacies and the private sector opening new pharmacies in their place1. This is happening because the private sector can claim back VAT paid on drugs, yet a NHS pharmacy cannot!!
The NHS is exempt from VAT so it can neither charge VAT nor claim it back. However, private healthcare companies are registered for VAT and when dispensing prescription drugs, which are zero rated, they can claim back the VAT paid on the purchase of the drugs. Some of these drugs, especially those for cancer treatment, are very expensive
This financial chicanery is no doubt the product of one of the large accountancy companies collaborating with well paid NHS executives. None of them are concerned that this is costing the British taxpayer a vast amount of money, which will increase as many more privately owned hospital pharmacies are planned.
When asked about this loophole, Her Majesty’s Revenue and Customs (HMRC) said: “Although NHS pharmacies cannot recover VAT on drugs that they dispense on prescription, they are funded for that cost as part of their general funding for healthcare1.”
This is obfuscation of the highest degree. If we accept the HMRC statement to be correct, it confirms that the taxpayer is subsidising the private pharmacies. If this is not the case, then HMRC needs to make an unambiguous statement that the NHS has not been funded for the VAT on drugs that they dispense on prescription.
This same loophole applies to Hospital at Home services provided by the private healthcare sector. BUPA used to openly advertise how they could undercut the NHS for using the expensive drugs, such as those needed for chemotherapy, purely because they can claim back VAT. However, when the Independent2 newspaper followed up Radical Soapbox’s information on BUPA and VAT, BUPA immediately removed the relevant page from their website! Suspecting this might happen I prepared a meme of the page, which is at the top of this article!
Where the NHS buys drugs direct from the drug companies there is no cost to the taxpayer for VAT. The NHS is provided with the monies to pay the VAT to the drug companies who, in turn, pay that VAT to the Government so the transactions are financially neutral. When the private pharmacies and Hospital at Home services buy the drugs they claim back the VAT and the transaction is no longer financially neutral. Effectively, the taxpayer is paying the VAT twice but only getting it back once! This means the taxpayer is funding the NHS to pay the VAT on drugs they are no longer purchasing!
This, in turn, raises the question of what are the actual financial agreements between the various NHS trusts and the private pharmacies and Hospital at Home services? Unfortunately, private companies are not subject to the Freedom of Information Act (FOI) for reasons of commercial confidentiality!!
A simple solution, which would save the taxpayers lots of money, is for the NHS to register for VAT.
Michael Gold
@radicalmic
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Thank goodness you did a screen shot of that Bupa information! They must think we were born yesterday! I am a breast cancer patient at Nottingham City hospital NHS Trust and have had all the treatment in the hospital, surgery, chemotherapy, radiotherapy etc, but when it came to the Herceptin treatment which is an injection or a drip every 3 weeks for a year, they told me you can have this done in your home every 3 weeks. A nurse will come in. I didn’t like the sound of this as I prefer to be in the hospital setting having procedures done so they let me continue to go to the hospital every 3 weeks on the ward to get my Herceptin treatment. So, I bet this Hospital at Home stuff would have been Bupa then! This is so wrong! Keep our NHS public!
Liz, very sorry to hear of your cancer and thanks so much for your open and honest comment. I have sent you a personal e-mail and wish you all the best in your fight against cancer.
Michael
I’m afraid there are a couple of inaccuracies with this post. The first is that you claim the NHS to be exempt from VAT. To be so would mean that the NHS does not pay VAT on the goods it purchases, but this is simply not true. The fact that the NHS does pay VAT on it’s purchases is part of the problem because as you rightly point out, as a public service organisation it cannot claim that VAT back from the government.
The second inaccuracy is your claim that private companies are able to claim the VAT back they have paid on zero rated drugs. Firstly, I don’t know of any drugs that are zero rated for VAT and secondly if there are any zero rated drugs, that would mean there is no VAT payable on them and therefore there would be nothing for private companies to claim back, because they won’t have paid any VAT.
Apologies if I seem to be not picking. It’s just that there is already enough inaccurate information coming from the government and I believe it is our responsibility to counter that with clear and accurate messages. Otherwise your post is very good and you have raised some important points which also apply when NHS providers are submitting bids to tender for the provision of services. Because private companies can claim back the VAT they pay and the NHS cannot, NHS costs are always 20% higher, putting them at a distinct and unfair advantage. This is contrary to both UK and EU competition law.
Damien,
Apologies for not getting back sooner but I will reply properly when I have gone back over my own notes.
Michael