VAT Annual Adjustment

Lentells Medical Division

GP practices that are registered for VAT are required to complete VAT returns on a monthly or quarterly basis. Many of the services provided by GP practices are covered by the healthcare exemption and the business will be partially exempt for VAT purposes.   The input VAT will need to be analysed into one of three categories as detailed below:


A. Fully Reclaimable

B. Partially Reclaimable

C. Potentially irrecoverable

Relates to taxable activities

Relates to both taxable and exempt activities

Relates to exempt activities

Example: Dispensed drugs, dispensary labels and bags

Example: Light and Heath

Example: Equipment for doctors room such as BP Monitor

All input VAT can be reclaimed

Apportioned between fully and non-reclaimable based on taxable and exempt income

Whether this can be recovered depends on total non-recoverable VAT being below a deminimis level of £625 per month and not less than 50% of the total input VAT


As the income ratios vary between months, the partially reclaimable VAT percentage will fluctuate.  For some smaller dispensing practices, whether their non-recoverable VAT falls below the deminimis and 50% limits may also vary each month.


At the end of each VAT year, which for most dispensing practices, would be March, an annual adjustment calculation is required to calculate the recoverable VAT over the year which is compared to the VAT reclaimed on the submitted returns.   Any adjustment to the input VAT is included on the next VAT return.


Capital goods scheme


Where a practice is VAT registered due to “opting to tax” the building, the expenditure relating to taxable activities will often be costs that cannot be wholly attributed to the taxable activity, for example heat and light.   The percentage of input VAT to be claimed is based on the floor area of the taxable activity.


The majority of practices who have “opted to tax” the building do so in order to recover a percentage of the VAT on the construction of the surgery.   Where the expenditure on land and buildings is over £250,000 exclusive of VAT, the asset is subject to the Capital Goods Scheme.





VAT Annual Adjustment (Continued)


This requires the surgery to review the taxable use of the asset on an annual basis for 10 years.  If there is any change in the taxable use percentage of the asset compared to the initial use, a Capital Goods Scheme adjustment is needed.