6 Reasons UK Pharmacies Should Outsource their Accounts

Pharma is known as an industry that is highly dynamic and constantly changing – something that has become more apparent since the pandemic. But in order to provide consumers with the best value on medications and to increase profit margins, a pharmacy needs to adopt strong accounting foundations to become a sustainable business venture. There is a lot more to pharmacy accounting than what meets the eye, including the need to plan for tax returns and the configuration of cost-saving measures for products. Your pharmacy can easily and quickly achieve long-term success and financial compliance with accurate accounting and bookkeeping.

In the pharmaceutical sector, where manufacturing costs make up a significant portion of the company’s overall expenditure, it is essential to build a solid foundation before tackling the numerous challenging aspects of pharmacy accounting. As a result, you can better manage your pharmacy, streamline everyday operations, strengthen controls, and maintain a proactive attitude in the complex pharmacy market of today.

In this blog, we go over 4 reasons why you need professional accounting services for your pharmacy in the UK and the long-term benefits it can bring to your business.

Business Incorporation (Self Employed Vs Limited Company)

Whether your pharmacy is a limited company or a sole trading entity can have a big effect on your tax liabilities as well as accounting practices.

Self-Employed: As a self-employed pharmacist, there are going to be tax liabilities on your earnings. Therefore, you must keep thorough records of any expenses you intend to claim back because many business-related costs might be subtracted from your earnings before taxes are computed. In comparison to other business structures, a self-employed trader is more closely related to their business, therefore the line between a sole trading pharmacist’s business liabilities and personal assets is very thin. While it is not possible to deduct personal costs from your income before determining your tax obligation, a self-employed pharmacist may be held personally responsible for the obligations of their company.

Limited Company: Pharmacists who opt to work as a limited business are able to safeguard their personal assets in contrast to self-employed arrangements. A limited corporation, which is a separate legal entity from its directors, has the advantage of business continuity. Your personal assets would not be impacted, for example, if the business was unable to pay its bills or was involved in expensive litigation. While directors of limited businesses have more flexibility in terms of the benefits, they may claim prior to corporation tax being calculated, self-employed pharmacists have the same ability to deduct business expenditures from their profits before tax is computed.

Action Plan

Professional accounting services are crucial for pharmacies in the UK, providing essential support in navigating tax liabilities, business incorporation, and financial compliance. Whether self-employed or operating as a limited company, pharmacies benefit from expert guidance to optimize their financial structures and ensure long-term success in a dynamic industry.

Tax Liability and Compliance

Your pharmacy’s business type is directly related to the tax legislation you have to adhere to. In the case of a self-employed pharmacy, you are liable to pay an income tax on your earnings. Alternatively, if your pharmacy is incorporated as a limited company, your business will have to file under corporate taxation. Making sure your accounting system integrates with your tax filings is the first step in building a strong pharmacy accounting foundation.

Accounting records, such as balance sheets, trial balances, profit and loss accounts, and bank reconciliation statements, will have to be accurately kept by your pharmacy, At the end of each financial year, your pharmacy must file its accounts to Companies House. Corporate Tax must be paid to HMRC within the same time frame. The next stage is to begin reconciling the balance sheet after your tax returns have been reconciled to the books, which may be a very difficult process. Depending on the state of your records, this requires going over every single balance sheet account and reconciling. Typically, they will be prepared and submitted on your behalf by your CPA or outsourced accounting partner.

Action Point

Ensuring tax compliance is essential for pharmacies, with business type dictating tax obligations. Self-employed pharmacists face income tax liabilities, while limited companies must adhere to corporate taxation. Integrating accounting systems with tax filings is crucial, requiring accurate record-keeping and timely submission of accounts to Companies House. Additionally, balancing the balance sheet post-tax reconciliation is vital, often managed by CPAs or outsourced accounting partners for efficiency and accuracy.

Save Money with Digitised Accounting

Having an in-house accounting team adds up to the mounting expenses of running a pharmacy. Now, with the UK government introducing the Making Tax Digital effort, all your accounting needs to be digital, software-driven, and cloud-backed. This move has put a greater imperative on businesses like pharmacies, dental practices, and vet clinics to digitise their books and integrate tax management with the rest of business processes through software.

But building this level of digital accounting infrastructure could turn to be a very tedious and costly task for a pharmacy. This is where outsourcing pharmacy accounting can be extremely beneficial for your pharmacy business. When you outsource your pharmacy accounts, the service provider takes the onus of making the necessary infrastructure changes in accordance with your business’s requirements. By outsourcing tech support and updating their books to cloud-based accounting platforms, pharmacies can unlock savings on hiring accountants and align with the HMRC’s Making Tax Digital strategy while also getting better value for their money on their information technology requirements.

Action Point

Digitized accounting offers pharmacies the opportunity to streamline operations and comply with the UK government’s Making Tax Digital initiative. However, building such infrastructure in-house can be costly and complex. Outsourcing pharmacy accounting can alleviate this burden, as service providers handle infrastructure changes and transition to cloud-based accounting platforms. By outsourcing tech support and embracing digital solutions, pharmacies can save on hiring accountants, align with HMRC regulations, and optimize IT investments, ensuring better value for money.

Cash Flow and Cost Control

Pharmacies can manage prescription payments, payrolls, and inventory levels more effectively and gain a clear financial view with the help of a solid accounting infrastructure since a contemporary accounting system will also provide automatic financial reports. Pharmacy inventories typically range widely in size. The exact numbers should be checked on a monthly basis so that all the information may be gathered in one place before the quarterly reports. For pharmacists, this provides additional insights about potential patterns in their stock portfolio while also forecasting correctly on better drug inventory management and replenishment.

Although controlling cash flow is a major stumbling block when starting a new pharmacy, efficient accounting can assure to manage your pharmacy’s cash position as it expands. Until you establish a payment history with a supplier, it is possible that they won’t initially offer you favourable credit terms. Hence, it is critical to plan cash flows as much as possible to make sure the pharmacy is staying within its means. Accounting can also be helpful in this situation by regularly reviewing expenses to make sure you are not overpaying and looking for areas where you can actively decrease costs, leading to successful cash management.

Action Point

Efficient accounting enables pharmacies to enhance prescription payments, manage payrolls, and optimize inventory levels. With modern systems providing automatic financial reports, pharmacists gain insights into stock portfolios, aiding inventory management. Effective accounting practices help manage cash positions and establish favorable credit terms with suppliers. Regular expense reviews and cost-saving strategies ensure successful cash management as pharmacies expand.

Ability to Scale with Business Growth

Having an outsourced accounting partner can help you easily scale your accounting plans while looking to start a new pharmacy. Having the flexibility to scale up or down rapidly is one of the key advantages of outsourcing accounting and finance. Pharmacies can find it difficult to manage accounts for various locations, particularly if their books are kept on site. This could slow down growth and end up costing your pharmacy a lot of money.

Accounting outsourcing firms provide a wealth of expertise and have the ability to unlock scalability with a wide variety of services and automation. Outsourced accounting and finance reduce the chance of human error, enables real-time data ingestion, helps with improved financial visibility, and enables higher workload bandwidth when the pharmacy encounters a bottleneck.

Action Plan

Outsourcing accounting facilitates scalable solutions for new pharmacies, allowing flexible adjustments as the business expands. With expertise and automation, outsourced firms reduce errors and offer real-time data access, enhancing financial visibility and workload capacity during growth phases.

Automated Inventory and Supplier Management

For pharmacies, onboarding new suppliers is a troublesome and time-consuming procedure. Automation-driven accounting support can help your pharmacy with automating invoicing and order-to-cash procedures, notifying staff of drug expiration dates, tracking shipments, and pointing out delays or anomalies with supplier payments or stock delivery. This in turn enables you to prevent overstocking of inventory or, conversely, going out of stock.

By automating data ingestion, like ledgering in sales and payments to suppliers, accounting automation software helps your pharmacy cut labour expenses. Automation allows for the faster and less expensive processing of more records while also running automatic and timely audits of your books. Your pharmacy can benefit from accounting automation by streamlining compliance procedures, automating tasks, improving reporting, and keeping an eye on compliance risks. This will lead to better outcomes through better business risk insight, better risk forecasting, and better prioritization of tasks.

Action Plan

Automated accounting systems simplify inventory and supplier management for pharmacies, reducing manual tasks and errors. By automating invoicing, order processing, and tracking, pharmacies prevent overstocking and stockouts while ensuring timely payments to suppliers. This improves efficiency, reduces labor costs, and enables faster processing of transactions and audits, enhancing compliance, risk management, and decision-making for better business outcomes.

Conclusion

The importance of effective accounting for pharmacies cannot be overstated. When it comes to dealing with your pharmacy business’s tax accountability and structure, it is important to gain expert assistance given the acute degree of regulation around the pharmaceutical sector and the complexity of UK tax legislation.

With a seasoned pharmaceutical accounting partner or tax advisor by your side, you can be confident that your pharmacy is complying with all current HMRC rules. Also, by using specialised CPAs, you can plan your pharmacy’s taxes pre-emptively and make sure that any decisions you make in the future regarding your business or employment align with your tax liability. With the right accounting support, UK pharmacists can handle their accounting needs, tax obligations, and company operations in an efficient and effective manner.

Further Information on Accounts & Tax

Our team of specialist accountants and tax experts can help manage, process and structure your business’s finances. From management accounts and payroll & pensions to tax planning and cash flow management, we can take care of the full back-office function of your business.

Book a free, no-obligation consultation with one of the team to find out how we can make your accounts & tax easier, quicker and cheaper.

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