The first point to make is that if a practice only makes exempt supplies (of medical services) it is not permitted to register for VAT. Therefore we must look at the types of supplies that a practice may make that are taxable (at the standard or zero rate). If any of these supplies are made it is possible to VAT register regardless of the value of them. This is called a voluntary registration and provides the practice with the ability to reclaim, at least some, input tax.  Of course, if taxable supplies are made, the value of which exceeds the current turnover limit of £73,000 pa, registration is mandatory.
 
Examples of services and goods which may be taxable are;

• Drugs, medicines or appliances that are dispensed by doctors to patients for self-administration:
  – Dispensing drugs against an NHS prescription is zero-rated.
  – Drugs dispensed against private prescriptions are standard-rated.
• Signing passport applications.
• Medicolegal services that are predominately legal rather than medical – for example negotiating on behalf of a client or appearing in court in the capacity of an advocate.
• Clinical trials or market research services for drug companies that do not involve the care or assessment of a patient.
• Paternity testing.
• Certain rental of rooms.
• Providing professional witness evidence.
• Any services which are not in respect of; the protection, maintenance or restoration of health of a patient.

Once registered, you will be required to file a VAT return on a monthly of quarterly basis. You will have to issue certain documentation to patients/organisations to whom you make VATable supplies.  You may need to charge VAT at 20% on some services.  You will be able to reclaim some VAT charged to you on purchases and other expenditure.  You will have to keep records in a certain way and your accounting system needs to be able to process specific information. 
 
Only VAT incurred in respect of zero-rated and standard-rated services may be recovered. In addition, there will always be input tax which is not attributable to any specific service and is ‘overhead’, eg, property costs, professional fees, telephones etc. There is a set way in which the recoverable portion of this VAT is calculated.  
 
Benefits of VAT registration

• Recovery of some input tax.
• Potentially, recovery of VAT on items such as property, refurbishment.
• Only a small amount of VAT is likely to be chargeable by a practice.
• May provide opportunities for pre-registration VAT claims.

Drawbacks of VAT registration

• Increased administration, paperwork and staff time.
• Exposure to VAT penalties and interest.
• May require VAT to be added to some services provided which were hitherto VAT free.
• Likely that only an element of input tax is recoverable as a result of partial exemption.
• Potential increased costs to the practice in respect of professional fees.

These are some of the headline VAT issues relating to GP Practices, but your accountant should be able to provide you with some more detail and help you review your VAT position. Alternatively, Price Bailey are able to offer a VAT status evaluation audit, on request.