How Community Pharmacy Funding Works in England
Written and reviewed by the Pharmacy Accountants editorial team. Last reviewed 28 July 2026.
Community pharmacy in England is funded through a national contract rather than a simple retail markup. Most of what a pharmacy earns for NHS work is set centrally, through agreed fees, reimbursement prices and a managed margin, so understanding the framework matters more than watching the till.
This guide explains how the money flows, from the Drug Tariff through the fees paid on each item to the retained margin. When you want that translated into monthly figures and a set of accounts, our community pharmacy accounts service handles the bookkeeping and reporting.
The Community Pharmacy Contractual Framework
The Community Pharmacy Contractual Framework, or CPCF, is the agreement between the Department of Health and Social Care, NHS England and Community Pharmacy England. The current deal covers 2024/25 and 2025/26. For 2025/26 the core funding envelope is £3.073 billion, a 19.7% like-for-like increase on 2023/24.
The published Community Pharmacy Contractual Framework sets out the fees and services that make up that envelope.
The Drug Tariff and Reimbursement
When a pharmacy dispenses an NHS prescription, it is reimbursed for the cost of the drug at the price listed in the Drug Tariff. Reimbursement covers the medicine itself, while separate fees and service payments cover the act of dispensing and any additional services provided.
The Single Activity Fee
From 1 April 2025 the main dispensing fee is the Single Activity Fee of £1.46 per dispensed item. It brings the older mix of fees into one payment per item, so the volume of items dispensed drives a large part of NHS income.
Retained Margin and the Agreed Allowance
Pharmacies buy many medicines for less than the Drug Tariff reimbursement price, and the gap is the retained margin. For 2025/26 the agreed medicine margin allowance is £900 million across the sector. Margin is surveyed and managed to that figure, so it is a planned part of funding rather than a windfall.
Dispensed NHS medicines are zero-rated for VAT under VAT Notice 701/57 while retail sales are not, so margin interacts with your VAT position, which we cover in VAT for pharmacies.
England, Scotland and Wales
These figures apply to England. Scotland and Wales run their own contracts and their own funding arrangements, so the CPCF envelope, the Single Activity Fee and the margin allowance should not be read as United Kingdom-wide numbers.