Veterinary Practice Accounting: Drug Stock, Client Debt and Practice Profitability

Introduction

A four-vet companion animal practice closes its year on £1.9m of turnover and a profit the partners are pleased with. Then the reviewer starts pulling threads. The stock figure came from the practice management system, not a count, and health plan direct debits were booked as income the day they landed.

There is more. Dozens of boosters those plans pay for have not been given yet. £24,000 of insurance claims sit in the client ledger, some rejected by the insurer weeks ago and never re-billed to the owner. The dispensing line looks healthy, but it includes drugs used in theatre.

None of that is fraud, and none of it is unusual. The cash was real. It just was not all this year’s profit, and the margin by income stream was a guess.

Veterinary practice accounting looks like any other small business until you open the ledger. A practice is a clinic, a pharmacy, a subscription business and a credit provider under one roof, and each part needs its own treatment. This guide is for UK accountancy practices with vet clients, and for practice owners who want numbers they can manage by.

Two changes make it more pressing this year. The CMA’s Veterinary Services Market Investigation Order 2026, made on 22 September 2026, caps prescription fees and requires medicine invoices to tell owners they may be able to buy cheaper elsewhere. And FRS 102’s new revenue and lease rules apply to accounting periods beginning on or after 1 January 2026, which is exactly where health plans and equipment finance sit.

What follows takes each part of the ledger in turn: income streams, drug stock and dispensing margin, health plans, insurance claims, client debt, vet and nurse utilisation, and the monthly pack that ties them together.

Income streams in a vet practice

A first opinion practice earns from at least six streams, and each has its own point at which income is earned and its own way of going wrong. Getting the split right in the chart of accounts is the foundation for everything else in this guide.

One rule runs across all of them. Veterinary services sit outside the VAT medical exemption, so consultations, surgery, medicines, health plans, food and cremation are all standard-rated at 20%. If your healthcare business accounting work is mostly GP surgeries, dental practices and medical clinic accounting, that is the first adjustment: vets are normally fully taxable, with full input VAT recovery and no partial exemption calculation.

The exception worth checking is insurance commission. A practice paid by an insurer for introducing clients may be making exempt intermediary supplies, depending on how the agreement is written, which brings a partial exemption test, usually within de minimis.

Income stream	When it is earned	Where it usually goes wrong
Consultations and procedures	When the work is done	Charges missed in the PMS; long hospitalisations not accrued at month end
Medicines dispensed to take home	When handed over	Mixed with drugs used in theatre, so the dispensing margin means nothing
Health plans	As the plan’s services are delivered	Booked as the direct debit lands, often net of the administrator’s fee
Insurance-funded treatment	When the work is done; the sale is to the client	Insurer balances lost in the client ledger; rejected claims never re-billed
Food and retail	At the point of sale	Stock not counted; food rebates booked as income when the cash arrives
Cremation and end-of-life	When the service is provided	Crematorium invoices posted months late, so the margin swings

The split that matters most sits inside the drug account. Drugs used in a procedure or given by injection are part of the clinical service. Drugs handed over to take home are a retail sale, and from 2027 they compete with online pharmacies on every invoice.

A dispensing margin that blends the two tells you very little about the part of the business the CMA has just targeted. Set up separate income and cost codes for medicines dispensed, medicines administered and consumables used, and make the PMS export map to them.

Mixed and farm practices add a seventh stream: medicines sold to farm clients on monthly credit accounts. Those balances are often the largest debtors in the business, and they sit outside the CMA Order, which covers household pets only.

Drug stock and dispensing margin

Drug stock is one of the few balance sheet figures in a vet practice that can move profit by tens of thousands of pounds, and it is often the least checked. Three things decide whether it is right: how it is valued, how rebates are treated, and whether anyone actually counted it.

Valuing drug stock at the year end

FRS 102 Section 13 values stock at the lower of cost and estimated selling price less costs to sell. Cost means the purchase price after trade discounts and rebates, not the wholesaler’s list price.

Count it. The PMS stock figure drifts with every unbilled item, split pack and dispensing error, and a wholesaler’s estimate is not a count. A full count at the year end, plus monthly cycle counts on the 50 highest-value lines, keeps the figure defensible.

Write down expired and short-dated stock, recalled batches and anything returned but not yet credited. Reconcile controlled drugs to the running balances in the CD register; a count that disagrees with the register is a compliance problem before it is an accounting one.

Wholesaler and manufacturer rebates

Most practices buy through one main wholesaler and earn retrospective rebates from the wholesaler, the manufacturers or a buying group, paid quarterly or annually in arrears. The common mistake is booking them as other income when the cash arrives.

That overstates drug costs for most of the year, makes margin jump in the month the rebate lands, and leaves year-end stock carried above cost. Accrue each rebate monthly once it is probable the target will be met and the amount can be estimated, credit it to cost of sales, and reduce stock by the share that relates to lines still on the shelf.

What the CMA Order does to dispensing margin

From 22 March 2027 for businesses with 15 or more practices, and 22 September 2027 for everyone else, written prescription fees are capped at £21.40 for the first medicine and £12.70 for each additional one, including VAT. The caps rise with CPI from 1 April 2028, under the Order published on GOV.UK.

The cap is VAT-inclusive, so the practice keeps £17.83 of a £21.40 fee. It also arrives with company: price lists and a parasiticide price list from 22 December 2026 (large) or 22 March 2027 (small), then from 22 June 2027 (large) or 22 September 2027 (small) an oral offer of a written prescription, a standard invoice notice and a flyer for owners on ongoing medication.

The practical question is how much repeat medication and parasiticide income moves online, and how much of the lost margin script fees recover. Here is an illustrative model for a practice selling £320,000 a year of repeat medication and parasiticides, net of VAT.

Share moving to online pharmacies	Sales lost	Gross margin lost at 40%	Script fees recovered, net of VAT	Net hit to profit
10%	£32,000	£12,800	£3,567 (200 scripts)	£9,233
20%	£64,000	£25,600	£7,133 (400 scripts)	£18,467
30%	£96,000	£38,400	£10,700 (600 scripts)	£27,700

Illustrative only. It assumes a 40% gross margin, one written prescription for every £160 of medicine that moves, and fees charged at the cap. Run it on the client’s own PMS data before anyone reprices.

Two things follow. Repeat medication margin needs to be reported as its own line from now on, and the vet time spent writing scripts is a cost the capped fee may not cover. Practices tempted to recover margin through consultation fees should remember that published price lists will make that visible too.

Health plans and deferred revenue

A health plan payment is not income when it lands. It is income when the practice delivers what the plan promises, and the gap between the two is a balance sheet figure that is routinely missing from practice accounts.

Most plans run on a 12-month minimum term paid by monthly direct debit, often collected by an administrator such as Premier Vet Alliance or Vetsure. They typically cover vaccinations, health checks and parasite control, plus a discount on other treatment.

What changed in 2026

For accounting periods beginning on or after 1 January 2026, FRS 102’s revised Section 23 applies a five-step revenue model based on IFRS 15. A plan becomes a contract with several performance obligations: the booster, each health check, the parasite treatments and, where the discount is significant, a right to cheaper future treatment.

The annual plan price is allocated across those obligations by standalone selling price, and each slice is recognised when it is delivered. A one-off joining fee buys nothing on its own, so it is spread over the plan term with everything else.

The CMA Order hands you the allocation table. From 22 December 2026 (large) or 22 March 2027 (small), practices must publish each plan’s contents, how often each item can be used and the standalone price of every item. That is precisely the data Section 23 needs.

A worked example

Take a dog plan at £18 a month, which is £15 net of VAT, or £180 a year. Standalone prices net of VAT are £60 for the booster, £45 for each of two health checks and £150 for a year of flea and worm treatment, £300 in total.

The plan price is 60% of that, so each item is allocated 60% of its standalone price: £36 for the booster, £27 per health check and £7.50 a month for parasite control. Here are two members at a 31 December year end.

Member	Joined	Net cash received by 31 December	Value delivered by 31 December	Position at year end
A	1 July, vaccinated and checked on joining	£90.00	£108.00	Contract asset of £18.00
B	1 February, booster not due until January	£165.00	£109.50	Deferred income of £55.50

Run that across every member and you get the plan book’s net position. A practice with 900 members carrying an average of £30 of undelivered value each has a £27,000 liability that does not exist if plan income is booked as the direct debits land.

Member A’s balance is only an asset if it can be recovered. Many plan terms let the practice charge the difference between the retail value used and payments made when an owner cancels early. If the practice never enforces that clause, the asset needs a provision.

VAT and the administrator’s cut

VAT at 20% is due on each plan payment as it is received, because the plan is paid for in instalments ahead of the services. Recognising revenue later under Section 23 does not move the VAT.

Administrators often remit collections net of their fee. If the bank feed drives the bookkeeping, plan income and output VAT are both understated by the fee, so gross it up: the full member payment is income, and the administrator’s fee is a cost.

One caution on transition. The first year under the new Section 23 needs an opening position for the plan book, and the tax treatment of any transition adjustment should be agreed before the accounts are signed.

Insurance claims and direct claims

When a practice agrees a direct claim, it gives the client credit and waits for the insurer to pay on the client’s behalf. The client is still the customer, and the accounting has to say so.

The sums are not small. ABI members paid a record £1.23 billion on 1.8 million pet claims in 2024, with an average claim of £685. For a practice doing orthopaedics, imaging or hospitalisation, insurer balances can outgrow everything else in the debtor ledger.

Who the customer is

The invoice goes to the client, and VAT is due at the normal tax point, whenever the insurer pays. The insurer is settling part of the client’s debt, not buying a service from the practice.

If the insurer pays less than claimed, or rejects the claim, the shortfall belongs to the client. That is why a signed direct claim agreement at admission matters, setting out that the owner stays liable for anything the policy does not cover.

The excess, and any items the policy clearly excludes, should be collected at discharge rather than added to the claim. Practices that charge a handling fee for direct claims should show it before treatment, not discover it on the bill.

Tracking insurer debtors

Move the claimed amount from the client’s account to an insurer control account when the claim is submitted, with one account per insurer. That turns one unreadable ledger into two you can age.

Insurer remittances often settle a batch of claims in one payment, sometimes with deductions. Match each line to its claim, and re-bill any shortfall to the client the same week, while the owner still remembers the treatment.

Report claims submitted, settled, part-settled and rejected each month. A rising rejection rate usually points to pre-existing conditions or policy limits not checked at admission, which is a front desk process issue rather than an accounting one.

direct claim settlement · 4 steps, 1 decision, 3 outcomes

Only a claim paid in full clears without going back to the owner; a part payment or a rejection lands on the client’s bill and should be re-billed within days.

Client debt and provisioning

Client debt in a vet practice builds up in a handful of predictable places, and each needs a provision built on evidence rather than a percentage. Most practices ask for payment at the time of treatment, so the debt that does accumulate tends to be the hard kind.

It gathers around emergency and out-of-hours treatment, long hospitalisations, informal payment plans, rejected insurance claims and, in mixed practices, farm accounts on monthly terms. Cost-of-living pressure has made all five slower to clear.

Credit control starts before treatment

The CMA Order will help here. From 22 June 2027 (large) or 22 September 2027 (small), practices must give a written estimate where a treatment pathway is likely to cost £500 or more including VAT, and an itemised bill for everything.

A written estimate is also the natural moment to take a deposit and agree how the balance will be paid. Clients who signed an estimate dispute less, and an itemised bill that matches it removes the commonest reason for not paying.

Provisioning that holds up

FRS 102 still uses an incurred-loss model for trade debtors, as the FRC deferred any move to expected credit losses in its 2024 review. A provision needs evidence that a loss has happened.

Smaller balances can be assessed in groups with similar risk. Sensible groups are debts over 120 days with no payment, accounts passed to a collection agency, defaulted payment plans, and rejected claims the owner has not settled.

A flat percentage of the ledger fails on two counts. It is not supported under FRS 102, and a general reserve with no link to specific evidence will not get a tax deduction.

Getting the VAT back

Output VAT was paid when the invoice was raised, whether or not the client ever pays. VAT bad debt relief is available once a debt is six months old, measured from the later of the due date and the date of supply.

The debt must be written off in a refunds-for-bad-debts account and the VAT must already have been paid over. Claims must be made within four years and six months, and any later recovery means repaying a share of the relief.

Practices with taxable turnover up to £1.35 million can use the cash accounting scheme instead, which gives automatic bad debt relief and stops VAT on slow insurer payments being paid early. Most multi-vet practices will have outgrown it, because the scheme must be left once turnover passes £1.6 million.

Track debtor days for clients and insurers separately. Blended together, a slow insurer hides a bad client run, and the reverse.

Utilisation by vet and nurse

Clinical time is a practice’s real capacity, so profitability is best read per vet and per nurse hour, not just per pound of turnover. A practice can grow income and still lose ground if the growth came from locum hours bought at a premium.

Staff costs are the largest cost line in most practices. They have climbed faster since the employer National Insurance rate rose to 15% in April 2025, and many practices still fill rota gaps with locum vets.

The measures worth tracking

•  Revenue per FTE vet. Turnover divided by full-time-equivalent vets, with locum days converted to FTE so the figure is not flattered by bought-in cover.

•  Consulting utilisation. Booked consulting minutes divided by available consulting minutes, by vet, by week. Low utilisation with long waiting times usually means a rota problem, not a demand one.

•  Average transaction value and transactions per vet per day. Read together, they show whether income is driven by volume or by value.

•  Nurse clinic hours and income. Plan health checks, weight clinics and post-operative checks moved to nurses free vet time for work only a vet can do.

•  Missed charges. Items used or dispensed but never billed, found by comparing stock usage with billed quantities. This is often the cheapest profit in the building.

•  Locum cost as a share of vet pay. A rising share tends to signal a recruitment problem months before it shows in the P&L.

Two cautions apply. Utilisation figures come from the PMS diary, so they are only as good as the booking discipline behind them. And from 22 December 2026 (large) or 22 March 2027 (small), the CMA Order requires written policies so vets can give impartial advice without commercial pressure, so bonus schemes tied to selling particular diagnostics or treatments need reviewing against that test.

Practice benchmarking

Benchmark against the practice’s own trend first, then against peer data such as the SPVS fee and salary surveys. Compare like with like: a partnership’s profit before partners’ drawings is not comparable with a company’s profit after market-rate salaries for the vets who own it.

The cleanest basis is adjusted EBITDA with every working owner charged at what it would cost to employ them. It is also the figure any buyer will rebuild, which is one more reason to have it in the healthcare management accounts every month.

The monthly pack

A vet practice’s monthly pack should answer four questions: what each income stream earned, where stock and the plan book stand, who owes the practice money, and how hard the clinical team worked. If it answers those, the year end becomes a formality.

•    P&L by income stream, with gross margin shown separately for medicines dispensed, medicines administered, food and retail.

•   Stock, at a counted or cycle-counted value, with stock days and rebates accrued for the month.

•   Health plans, showing members joined, cancelled and net, income earned against income collected, and the plan book’s net position.

•   Debtors, with the client ledger and each insurer ledger aged separately, plus claims rejected in the month.

•  Clinical KPIs: revenue per FTE vet, consulting utilisation, average transaction value, nurse clinic hours and locum spend.

•  Cash and finance: cash flow, equipment finance repayments and headroom on any bank covenants.

•  A compliance calendar covering VAT quarters, payroll and the CMA dates below.

Equipment finance and the new lease rules

Digital X-ray, ultrasound, CT, dental and anaesthetic monitoring equipment is usually funded by hire purchase or lease. Hire purchase assets sit on the balance sheet and qualify for capital allowances once they are brought into use.

For FRS 102 reporters, periods beginning on or after 1 January 2026 bring most leases onto the balance sheet as a right-of-use asset and a lease liability. The exemptions cover only short-term and low-value leases, and vehicles, heavy equipment and property do not count as low value. Practices reporting under FRS 105 keep the old operating and finance lease split.

The effect is that premises rent and equipment lease costs leave overheads and come back as depreciation and interest. EBITDA goes up, reported debt goes up, and anything measured on either, from bank covenants to a buyer’s offer, needs re-basing before the first set of accounts lands.

Ready for a buyer, or just ready

More than 60% of the UK’s roughly 5,000 practices are now owned wholly or partly by six large groups, against around 10% in 2013. Whether or not an owner plans to sell, a buyer’s due diligence is a good test of the pack.

A buyer will normalise owners’ pay, count the stock, rebuild the plan liability, age the insurer debtors and check CMA compliance. A practice whose monthly pack already does that has nothing to rebuild, and nothing for a buyer to chip off the price.

The compliance calendar to 2028

Every business operating a first opinion practice when the Order came into force must send the RCVS its contact and site details by 30 November 2026. The rest of the Order lands in stages, with earlier dates for businesses with 15 or more practices.

CMA Veterinary Services Market Investigation Order 2026, Article 3 compliance table · 6 obligations

Most obligations reach smaller practices three to six months after the large groups, and the fee cap gap is the longest at six months. Budget for the price list work first: it lands before Christmas for the large groups and in March 2027 for everyone else. Strictly, each duty applies from the next working day after the date shown.

Frequently asked questions

Do vets charge VAT on their fees and medicines?

Yes. Veterinary services fall outside the VAT medical exemption that covers most human healthcare, so consultations, surgery, medicines dispensed by a vet, health plans and pet cremation are standard-rated at 20%. Because their income is taxable, most practices recover input VAT in full.

How should a vet practice value its drug stock?

Count it, then value it at the lower of cost and estimated selling price less costs to sell, under FRS 102 Section 13. Cost is the price paid after discounts and rebates. Write down expired, short-dated and recalled stock, and do not rely on the PMS figure or a wholesaler’s estimate.

Are health plan payments income when they are received?

No. They are earned as the plan’s services are delivered, so the practice usually holds deferred income for services still owed, or a contract asset where it has delivered more than it has been paid. For periods beginning on or after 1 January 2026, FRS 102’s revised Section 23 sets out how the plan price is allocated across its contents.

How much can a vet charge for a written prescription?

Under the CMA Order, no more than £21.40 for the first medicine and £12.70 for each additional medicine prescribed at the same consultation, including VAT. The cap applies from 22 March 2027 for businesses with 15 or more practices and from 22 September 2027 for smaller ones, and rises with CPI from 1 April 2028. Until then, the RCVS expects any fee to be reasonable.

Does the CMA Order apply to independent practices?

Yes. It applies to every veterinary business providing first opinion care for household pets, from single-site independents to the large groups, with later compliance dates for businesses with fewer than 15 practices. Charities that do not provide services on a commercial basis are excluded, and equine and farm work falls outside its definition of household pets.

Who is the customer when an insurer pays the vet directly?

The pet owner. The invoice and the VAT relate to the practice’s supply to the client, and the insurer pays part of the client’s bill on their behalf. Anything the insurer does not pay remains the client’s debt.

Do vet practices have to accept direct insurance claims?

No law requires it; it is a commercial decision for each practice. Those that offer it usually set conditions, such as a minimum claim value, insurer pre-authorisation for larger treatment, the excess paid at discharge and a signed agreement that the owner remains liable for any shortfall.

When can a practice reclaim VAT on a bill a client never paid?

Once the debt is more than six months old, measured from the later of the due date and the date of supply, provided it has been written off in a refunds-for-bad-debts account and the VAT was paid to HMRC. The claim must be made within four years and six months, and any later payment means repaying part of the relief.

What KPIs should a vet practice track every month?

Margin by income stream, drug cost and stock days, health plan members and the plan book’s net position, client and insurer debtor days, revenue per FTE vet, consulting utilisation, average transaction value, nurse clinic hours and locum spend. Each one ties back to a figure in the accounts, which keeps the KPIs honest.

What is a good profit margin for a vet practice?

There is no official benchmark, and published figures differ in how they treat owners’ pay, which makes most comparisons misleading. The fair measure is adjusted EBITDA with every working owner charged at market rate, compared first with the practice’s own trend and then with peer data such as the SPVS surveys.

How do the new FRS 102 lease rules affect a vet practice?

For FRS 102 reporters, accounting periods beginning on or after 1 January 2026 bring most premises and equipment leases onto the balance sheet as a right-of-use asset and a lease liability. EBITDA and reported debt both rise, so bank covenants and valuation discussions need re-basing. Micro-entities reporting under FRS 105 keep the old lease treatment.

Should a vet practice use the VAT cash accounting scheme?

It can if taxable turnover is £1.35 million or less, and it must leave once turnover passes £1.6 million. The scheme means VAT is paid only when clients and insurers actually pay, which suits practices with large insurer balances, but most multi-vet practices are above the limit.

Does Making Tax Digital for Income Tax affect vets?

It applies to sole trader vets, including self-employed locums, with qualifying income over £50,000 from 6 April 2026, falling to £30,000 in April 2027 and £20,000 in April 2028. Partnership income does not yet count towards the threshold and companies are outside it, but every VAT-registered practice already files VAT returns under MTD.

What do buyers look for when a corporate group makes an offer?

Normalised EBITDA, counted stock, a properly calculated plan liability, aged client and insurer debtors, staff and locum costs, lease and finance commitments, and evidence of CMA compliance. Owners selling shares should also check Business Asset Disposal Relief, charged at 18% on qualifying gains from 6 April 2026, up to the £1 million lifetime limit.

Can a practice still make a margin on medicines after the CMA changes?

Yes. The Order caps prescription fees, not medicine prices, but it requires practices to publish prices for their most common parasiticides, tell owners they can ask for a written prescription and itemise medicines on every bill. Margin will hold best where prices are competitive and the practice adds real convenience, such as plan-based supply.

Making vet practice accounts review-ready every month

Most of what goes wrong in veterinary practice accounting is decided monthly, not at the year end. A count skipped, a rebate parked in other income, a plan administrator’s remittance posted net, a rejected claim nobody re-billed. By the time the year-end file reaches a reviewer, rebuilding those is slow and expensive.

We work as the back office for UK accountancy practices with healthcare portfolios. That means monthly healthcare practice bookkeeping with stock, rebate, plan and insurer reconciliations built in, and VAT returns that gross up plan and administrator income.

On top of that sit management accounts with the vet KPIs above, and year-end accounts prepared under the revised FRS 102, delivered ready to review. Vet and nurse payroll runs through our payroll team, and standard jobs come back within five working days.

If you would rather test it than take our word for it, send us one real vet practice file, ideally the one with the health plan nobody has reconciled. We will rebuild the plan position, test the stock figure and hand back a pack your reviewer can sign.

Start a free trial or talk to our healthcare team.

Related reading: Healthcare accounting outsourcing for UK practices | Outsourced management accounts | Outsourced bookkeeping

This article is general guidance for UK accountancy practices and veterinary practice owners and is not a substitute for advice on a specific client file. CMA Order dates and fee caps, FRS 102 requirements and VAT thresholds are those in force as at October 2026 and may change.