At Rushport we are experiencing a steady increase in enquiries about the work we do in the private pharmacy market. Some companies are setting up pharmacies to support the work they already do as private doctors treating a wide variety of conditions and others are setting up private online pharmacies that are often linked to the issuing of a prescription for conditions such as erectile dysfunction or hair loss following an online consultation.

One of the key considerations for entrants into the private online pharmacy market is how much it will cost them to provide their services and how they can offer them at a lower price than the competition and still make a reasonable return on their investment.

To understand the cost implications properly it is important to consider what the costs will be to properly comply with all the relevant legislation and the cost of meeting the standards that the various regulators impose. Some prescribing services will require CQC registration and that is perceived as an additional burden and cost by some operators. This has led to some operators considering how they can employ prescribers who are lawfully permitted to prescribe to patients in the UK because of EU law, but are not subject to CQC oversight.

One of the more novel ways to achieve this is to employ the services of doctors based in Romania. This model had the advantage of being able to say that the prescriber was indeed a doctor and EU law meant that Romanian doctors could prescribe for citizens of the U.K. In 2018 the BBC Panorama programme went undercover to expose what could go wrong with this type of operation and some of the results were shocking. The CQC was left having to point out that they simply did not have the power to regulate these types of operation and has now issued guidance that tells patients to check;

"If they are registered overseas what are their details? Doctors who are not GMC-registered will not necessarily work to the same clinical standards."

Putting aside the question of whether the CQC should be saying that oversees doctors may well not be as good as "our" doctors, this is about all they have been able to do.

Next the GPhC weighed in as pharmacies linked to these online consultations were not all operating in a way that the GPhC was happy with. In April 2019 the GPhC published its new guidance for people seeking medicines online. The GPhC used slightly more guarded language about foreign doctors and said that pharmacies should;

"assure themselves that the prescriber is working within national prescribing guidelines for the UK"

Mmmm... how will they do that exactly?

This all helps to improve standards, but can the GPhC lawfully tell pharmacies that prescribers from other countries must operate to UK standards even though EU law recognises the equivalence of their qualification? I suspect no court would want to grapple with that one in a hurry.

The CQC and GPhC guidance was lauched with great fanfare and talk of protecting the public, but meanwhile the clever accountants at HMRC were quietly working away on their own assualt against online prescribing by foreign doctors market and on 23 April 2019 Judge Marilyn McKeever sitting in the the First Tier Tribunal (Tax) issued a decision which few people will even be aware of, but which may have a profound impact on the use of non UK based doctors - and it is all to do with VAT.

As pharmacy operators will know, you do not charge VAT on private prescriptions because medicines are "zero rated" for VAT because the Value Added Tax Act 1994 (“VATA”) provides for the zero-rating of certain medical supplies. This saves the patient 20% on the cost of their private prescription and makes that hair loss and erectile dysfunction treatment a lot easier to pay for. However, HMRC had noticed that a number of prescribers were issuing prescriptions from outside of the UK and someone in the land of tax wizards decided that this was worth taking a closer look at.

The case would take a bit of explaining here, but what it all centred on was whether a foreign doctor (even in the EU area) was a "registered medical practitioner" or not. HMRC said this was very important as the zero rated VAT rule only applied if the prescription was written by such a practitioner and an EU qualified doctor who is not registered with the GMC is not a registered medical practitioner within the meaning of Note 2B of VATA.

The pharmacy company quite rightly argued that if HMRC was correct then this was clear discrimination between identical supplies made on the prescription of UK doctors and doctors from other EU countries and this is a breach of the EU principle of fiscal neutrality (ie not treating services from another EU country unfairly or taxing them more).

The judge basically agreed with both sides and found that whilst HMRC's position amounted to a breach of the EU principle of fiscal neutrality, that parliament had intended it to be just that and that she could not use the very wide powers available to her to change the definition.

The effect of this ruling is that any pharmacy that dispenses a prescription written by a doctor who is not GMC registered must charge an additonal 20% VAT and pay that over to HMRC. Not only that, but all past sales made in such a manner should have attracted 20% VAT and the pharmacy must now pay that VAT to HMRC even though they didn't charge it in the first place.

For the pharmacy in this case HMRC was aking for and has been awarded nearly £157,000 of unpaid VAT and interest.

A 20% cost increase for a service provider may well wipe out the savings achieved in Romania (especially for expensive drugs) and force those operators using oversees doctors to use GMC registered doctors instead. This in turn will mean that the CQC will have to regulate the service that is provided. So whilst HMRC quietly chased its VAT payment it has probably done more than any regulator has ever, or could ever, have done to improve the quality of online precribing in the UK.

Now we are just left wondering who s going to tell all the pharmacy operators out there that they need to perform additional checks on where the prescriber was registered and charge VAT where appropriate... probably HMRC again by the looks of things as nobody else seems to know about this case yet and it may end up at appeal.

You can read the tax case here if you want to learn more https://www.bailii.org/uk/cases/UKFTT/TC/2019/TC07104.html

Conor Daly

Partner | Rushport Advisory LLP

A big thank you to my brilliant accountant Chris Wilkins of Wilkins Southworth for bringing this tax case to my attention.