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Sunday 25th August 2019

HMRC investigating trusts

21st February 2013

The taxman has started to closely examine the tax arrangements of hospital trusts amid moves by some to lawfully avoid paying VAT on outpatient drugs.

Drugs & Money

It has emerged that at least 30 trusts have brought in private firms to run their outpatient dispensaries and HSJ has identified two foundation trusts - South Warwickshire Foundation Trust and University Hospitals Birmingham Foundation Trust - which have set up wholly-owned subsidiary companies to run the service.

At present, tax guidance from HMRC says that where a hospital trust enters into a contract with a third party to operate its dispensary, drugs for outpatients can be exempt from VAT, which is normally paid at the rate of 20%.

It means hospitals can make significant savings by using a third party organisation or setting up a private company to run outpatient pharmacies.

Where an existing company has been brought in, the savings can be shared between the new provider and the trust.

HMRC has confirmed that it is aware that some trusts have been entering into structures that seek to bring third-party pharmacy services on to hospital premises.

“HMRC is currently reviewing the different structures being used,” said a spokesman.

HSJ research has revealed that Lloydspharmacy is now running 24 hospital outpatient pharmacies, Boots runs five and York Teaching Hospital Foundation Trust’s service is run by the company Healthcare at Home.

However, tax barrister Anne Fairpo said the move was not tax evasion but more a case of trusts working within the rules in an attempt to maximise budgets for the NHS.


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