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UK pharmacy operators have hit out at a probe by HM Revenue & Customs into their use of locum pharmacists, warning that a “retrospective” attempt by the tax agency to claw back cash risks the closure of high street stores.
HMRC has been investigating pharmacy businesses for several years to determine whether the self-employed locum pharmacists they use are employed for tax purposes. A change in classification would mean an increased tax bill for pharmacies to pay income tax and employers’ national insurance.
The Company Chemists’ Association, the trade body for large pharmacy operators, said that most of its members — which include Boots, Superdrug, Rowlands Pharmacy, Well, Tesco, Asda and Morrisons — were in dispute with the tax agency over the issue.
It said the tax agency had concluded all locums used by all pharmacies should be employed for tax purposes. In August 2023, HMRC made a settlement offer to many large pharmacy chains for backdated income tax and employers’ national insurance.
However, the industry strongly disputed the decision and has accused HMRC of seeking to retrospectively change the way it treats the tax position of self-employed pharmacists. It argued pharmacies had for years followed HMRC-issued guidance, which has since been withdrawn.
“What we don’t like is HMRC putting out guidance and then not sticking to it,” said Malcolm Harrison, CCA chief executive. “It’s the retrospective nature of what they’re trying to do that isn’t right and if they do go forward with it, it will have negative consequences to the NHS, to the health of the nation and to the taxpayer.”
Harrison added that several of the pharmacy chains’ customer compliance managers — senior professionals HMRC assigns to all large businesses — had for years told businesses that the way they had engaged locums “was fine”, and were similarly confused by the agency’s conclusions.
Locum pharmacists made up about one in five of the workforce, he said, so any “unwarranted” tax bills for companies would put pressure on margins and lead to a closure of pharmacies.
According to CCA estimates, the sector as a whole would face an additional tax bill of at least £550mn for the six years to 2020-21 if all locum pharmacists were classed as employees. In future, the change would add an extra £100mn a year in costs to pharmacies, the trade body said.
Many pharmacy businesses were already “on their knees”, with more than 300 net closures in 2023, Harrison said, adding: “To have this over our head isn’t good.”
Until recently, sector-specific guidance from HMRC set out in what scenarios pharmacists working as locums could be considered self-employed for tax purposes.
However, the agency withdrew that guidance in 2023 and said companies and individuals should instead use its “check employment status for tax” (CEST) tool to assess tax status.
Matthew Sharp, a partner in contentious tax at law firm Fieldfisher, who is representing some of the pharmacy chains, said HMRC’s position was now “entirely to disregard that guidance and say it was guidance, so not binding”.
George Gillham, partner and head of contentious tax at Fieldfisher, said there was “an element of cash grab” about HMRC’s actions.
“This is one arm of the government robbing Peter to pay Paul and [as a result] raising the costs of the provision of NHS pharmacy services,” he said.
HMRC insiders said that improvements to the CEST tool meant specific guidance for pharmacies was not needed, and that the removal of the guidance was unrelated to the agency’s compliance work.
They added that the authority had narrowed its investigations to locum pharmacists it considered most likely to be employees, reducing the one-off historical tax and NICs owed by the sector to roughly one-tenth of that estimated by the CCA.
HMRC said: “Our approach to resolving the situation with locum pharmacists has been both fair and pragmatic. We’re collecting the tax which is due under the law, creating a level playing field for everyone and helping to fund vital public services, such as schools and hospitals.”
Asda said it had reached an agreement with HMRC and was no longer under investigation. Rowlands Pharmacy and Morrison declined to comment. Boots, Superdrug, Tesco and Well did not respond to requests for comment.
