UK Pharmacies are our priority customers

Supplier VAT Validation, Credit Notes & Rebate Posting for Pharmacies

Pharmacy owners get supplier VAT checked line by line, variable medicine rates verified, and credit notes and rebates posted correctly, so VAT returns are accurate and cash flow improves.

• 30+ years of experience
• Specialised Pharmacy VAT Expert in UK

What does our supplier VAT validation service include?

You get a pharmacy-specific programme led by a VAT Accountant and VAT consultant that audits supplier invoices, detects VAT errors, and fixes postings before they hit your VAT return.

• Invoice ingestion and triage
  We capture supplier invoices from AAH, Phoenix, Alliance Healthcare, Lexon and others in Dext or Hubdoc, then route high-risk lines for manual review.
  
• VAT rate verification for medicines and devices
  We test each product against expected VAT behaviour at 0 percent, 5 percent or 20 percent, flag anomalies and request corrected VAT invoices where needed.
  
• Credit notes and commission notes handling
  We classify supplier credit notes for damaged stock, price corrections and out-of-stocks, and post buying group rebates and commission statements with reverse VAT logic rather than as negative purchases.
  
• Xero configuration and journals
  We map Xero VAT codes for 0 percent, 5 percent, 20 percent, exempt and outside scope, and create journals for rebates, retrospective discounts and settlement discounts that keep the input VAT trail clean.
  
• Monthly reconciliation pack
  We tie supplier statements to the purchase ledger, reconcile credits, and bridge to EPOS sales and NHS PPD timing so pharmacy VAT is consistent across purchases and sales.
  
• HMRC evidence and supplier liaison
  We keep an audit file with annotated invoices, email threads and posting references, and we liaise with suppliers to obtain corrected documents.

Why do suppliers create VAT problems for pharmacies?

Suppliers create VAT problems because identical medicines can appear at 0 percent one month and 5 percent or 20 percent the next depending on product coding, pack description or substitution. If invoices are posted as-is, VAT is overstated or understated and partial exemption is distorted. A pharmacy VAT Accountant validates each risk category and fixes errors before filing.

How do we verify variable VAT rates on medicines and health products?

Verification starts with data, then rules. We cross-check product descriptions, GTINs and supplier VAT with expected treatment and escalate mismatches.

• Data checks
  Compare invoice lines to a maintained VAT matrix for medicines, contraception at 5 percent, medical devices, cosmetics, toiletries and supplements.
  
• Pattern analysis
  Run supplier-by-SKU variance checks to spot month-to-month VAT changes on the same item.
  
• Supplier query workflow
  Issue a standard query pack asking for corrected VAT invoices or confirming zero or reduced rate status with product evidence.
  
• Posting safeguards
  Park disputed bills in Xero and post to a suspense account so returns do not include uncertain VAT.
  

How should credit notes and rebates be posted for correct VAT?

Credit notes and rebates need reverse logic. If you treat them as simple negative purchases, input VAT goes wrong and VAT returns misstate recovery.

• Standard credit notes
  Post against the original invoice, mirror the VAT code used, and keep the link for audit.
  
• Buying group rebates and retrospective discounts
  Post as income with the correct VAT code or outside scope where applicable, not as negative stock. Create a recurring journal template so treatment is consistent.
  
• Commission notes
  Recognise commission with the VAT status shown on the note. Where VAT is not shown, avoid creating a notional VAT claim.
  
• Settlement discounts
  Use Xero rules that split discount and VAT correctly, matching supplier treatment.
  

How do supplier VAT corrections affect partial exemption?

Partial exemption relies on accurate taxable versus exempt apportionment. If supplier VAT is misstated, your recoverable percentage shifts and either loses reclaim or increases HMRC risk.

• Residual input VAT tagging
  Tag overhead VAT as residual so monthly and annual PE calculations pick up the corrected numbers.
  
• PE workbook alignment
  Refresh monthly PE percentages after material supplier corrections and push a year-to-date adjustment when needed.
  
• De minimis testing
  Recheck de minimis if supplier fixes swing the numbers across thresholds.

How do we reconcile supplier activity to EPOS sales and NHS timing?

Reconciliation proves that purchases, sales and funding align, which stops HMRC queries.

• EPOS link
  Tie high-volume SKUs to EPOS categories to ensure the VAT direction at purchase aligns with sale rate expectations.
  
• NHS PPD bridge
  Match month-end accruals to statements in arrears so returns reflect activity, not cash, and supplier credits land in the right period.
  
• Import VAT via PIVA
  Capture postponed import VAT statements and allocate to the correct products to defend input VAT on imported stock.

What documents and data do we need to start quickly?

Good inputs speed setup and reduce rework with suppliers.

• Last three months supplier statements and top five suppliers’ invoices.
  
• A sample of credit notes, rebate and commission statements.
  
• EPOS product master with VAT categories for top 200 SKUs.
  
• Current Xero VAT codes, chart of accounts and posting rules.
  
• Any partial exemption or retail scheme worksheets.

What common errors do we remove that cost pharmacies money?

We target high-impact errors that recur across suppliers and periods.

• Posting 0 percent medicines as 20 percent due to description changes.
  
• Treating contraception at 5 percent as zero rated or 20 percent.
  
• Recording rebates as negative purchases, inflating or deflating input VAT.
  
• Leaving credit notes unmatched to original invoices, breaking the audit trail.
  
• Claiming VAT on commission notes that show none.
  
• Omitting PIVA from the return or allocating to wrong accounts.

How do we embed controls so problems do not return?

Controls make accuracy routine and keep workloads light for your team.

• Rate register and variance alerts
  Maintain a VAT rate register by SKU and alert on supplier changes.
  
• Posting playbooks
  Publish one-page rules for credits, rebates, commissions and settlement discounts.
  
• Monthly supplier review
  Review top suppliers, resolve open queries and sign off a reconciliation checklist.
  
• Quarterly training
  Refresh staff on spotting anomalies and using suspense for disputed bills.
  
• Audit file
  Store corrected invoices, emails and Xero references together for HMRC.

How do we implement this in Xero without disrupting operations?

Implementation focuses on codes, rules and light automation that your team can run.

• Create purchase VAT codes for 0 percent, 5 percent, 20 percent, exempt and outside scope, and link products or suppliers where practical.
  
• Build repeating journals for rebates and commissions with correct VAT treatment.
  
• Use Dext or Hubdoc rules to pre-code vendors and flag exceptions for manual review.
  
• Add a supplier statement reconciliation template and a month-end sign-off.

What happens next?

Pharmacies can share two recent supplier statements, five invoices with mixed VAT, and any rebate or commission notes. We will produce a sample error report, correct the postings in Xero, and issue a fixed-fee plan for ongoing supplier VAT validation, credit note control and rebate accounting.

RX Virtual Finance LTD is your pharmacy-specialist VAT Accountant, VAT consultant and VAT Expert for supplier VAT validation, variable rate checking and accurate posting of credits, rebates and commissions, delivering cleaner VAT returns and stronger cash flow.