UK pharmacy operators have reacted angrily to a probe conducted by HM Revenue & Customs on their use of locum pharmacies. They warn that a “retrospective attempt” by the tax agency, in order to recover cash, could lead high street stores to close.
HMRC is investigating the pharmacy business for many years to determine if the locum pharmacists that they employ are self-employed for tax purposes. Changes in classification could result in a higher tax bill, as pharmacies would have to pay more income tax and employer’s national insurance.
The Company Chemists’ Association, a trade association for large pharmacy operators, has said that many of its members, including Boots, Superdrug, Rowlands Pharmacy, Well, Tesco, Asda, and Morrisons, are in dispute with tax authorities over this issue.
The tax agency said it had determined that all locums employed by pharmacies were to be taxed. HMRC offered a settlement to large pharmacy chains in August 2023 for income tax and employer’s national insurance backdated.
The industry has strongly contested the decision, accusing HMRC of trying to retroactively change its treatment of the tax situation of pharmacists who are self-employed. It claimed that pharmacies followed HMRC guidance for many years, which was withdrawn.
Malcolm Harrison, CCA’s chief executive, said: “We don’t like HMRC issuing guidance and then failing to adhere to it.” The retrospective nature of their plan is not right. If they go ahead with it, there will be negative consequences for the NHS, the health of the country and the taxpayer.
Harrison said that several pharmacy chains’ customer compliance managers — senior professionals HMRC allocates to large businesses — told businesses for years that the way in which they engaged locums was “fine” and were confused by the agency conclusions.
He said that locum pharmacists made about one fifth of the workforce. Any “unwarranted tax bills” for companies could put pressure on company margins, and even lead to pharmacy closures.
CCA estimates that the entire sector would be hit with an extra tax bill of £550mn over the next six years, up to 2020-21, if all locum pharmacies were classified as employees. The trade association said that the change will add £100mn in annual costs to pharmacies.
Harrison stated that many pharmacy businesses are already “on their knees” with over 300 net closures by 2023. He added: “To be in this situation is not good.”
HMRC had issued sector-specific guidelines that outlined the scenarios in which pharmacists who work as locums can be considered self employed for tax purposes.
The agency retracted this guidance in 2023, and instead said that companies and individuals could use the “Check Employment Status for Tax” (CEST), tool to determine tax status.
Matthew Sharp, a partner at the law firm Fieldfisher who represents some pharmacy chains, stated that HMRC now “totally disregards this guidance and says it is guidance, therefore not binding”.
George Gillham of Fieldfisher, a partner and the head of contentious taxes, said that HMRC’s actions had “a certain element of cash grab”.
He said: “This is an arm of government that steals from Peter to pay Paul, and [as such] raises the cost of NHS pharmacy services.”
HMRC Insiders stated that specific guidance for pharmacists was no longer needed due to improvements in the CEST tool. The removal of this guidance has nothing to do with the compliance work done by the agency.
The authority said that it had limited its investigation to the locum pharmacists that they considered to be most likely employees. This resulted in a reduction of the historical tax and NICs due by the sector by approximately one-tenth compared to the CCA’s estimate.
HMRC stated: “Our approach in resolving this situation with locum pharmacies was both fair and pragmatist.” We are collecting the tax that is required by law. This creates a level playing ground for all and helps to fund essential public services such as hospitals and schools.
Asda confirmed that it has reached an agreement with HMRC, and is no longer under investigation. Rowlands Pharmacy, Morrison and Tesco declined to comment. Boots, Superdrug Tesco and Well have not responded to requests for comments.