GP Surgery Energy Costs: What the NHS Doesn’t Pay For

NHS England Covers Most Energy Costs for GP Practices Through Premises Reimbursement. But Not All Practices Qualify — and Not All Costs Are Covered.

GP surgery energy procurement sits in an unusual position in the UK business energy market: it straddles the boundary between NHS-funded operations and independent practice overhead. Many GP partners are unaware of exactly which of their energy costs are reimbursed through NHS England’s premises costs scheme, which are their direct liability, and — critically — whether the contracts they currently hold are costing them more than they should.

The result is a category of healthcare business where significant energy overpayment exists not because of neglect, but because the funding framework creates ambiguity about who is responsible for managing the energy contract. If NHS England is reimbursing the cost, does it matter whether the rate is competitive? The answer — which we’ll explain — is yes, and for reasons that go beyond the straightforward.

NHS England Premises Reimbursement: What’s Covered

NHS England’s General Medical Services (GMS) contract provides premises cost reimbursements to GP practices that own or rent their premises. The scheme covers a range of premises-related costs including rent (or notional rent for owned premises), rates, and, crucially, a proportion of energy costs.

For practices that meet the eligibility criteria — broadly, GMS and PMS contract holders operating from premises that are either owned by the practice or rented from a private landlord — energy cost reimbursement is available under the cost rent or notional rent schemes. The reimbursement is calculated as a proportion of actual energy costs submitted, subject to benchmark limits that vary by practice size and type.

However, the reimbursement framework has several important limitations:

Benchmark caps: NHS England applies benchmark limits to energy reimbursement based on floor area and property type. If a practice’s actual energy costs exceed the benchmark — because of an uncompetitive contract, an inefficient building, or above-average consumption — the excess is not reimbursed. The practice bears that excess directly.

Eligibility gaps: Not all GP practices are eligible for full premises reimbursement. Practices operating from NHS-owned premises (such as health centres and polyclinics) may have energy costs managed by the NHS property company (NHS Property Services) under different arrangements. Practices in APMS (Alternative Provider Medical Services) contracts may have different reimbursement entitlements. The eligibility picture is not uniform.

Administrative requirements: Practices must submit energy cost evidence to claim reimbursement. Many practices claim below their entitlement because of administrative friction — the reimbursement process requires documentation that smaller practices sometimes don’t prioritise.

The Reimbursement Incentive Problem

The structure of NHS energy reimbursement creates a specific incentive distortion: if a practice believes its energy costs are being reimbursed by NHS England, there is reduced motivation to negotiate a competitive energy contract. The cost is, in effect, being passed to the NHS — so optimising it feels like saving someone else’s money, not the practice’s.

This reasoning has two flaws:

First, reimbursement is capped. Any energy cost above the NHS benchmark is a direct practice cost, regardless of how the practice perceives the reimbursement mechanism. A practice on an uncompetitive contract paying 25% more than market rate is paying that 25% excess from partners’ drawings, not from NHS funding — even if the base amount is reimbursed.

Second, NHS reimbursement rates do not automatically track energy market movements. The benchmark reimbursement figures are reviewed periodically but may not reflect the full increase in energy costs during periods of market stress. Practices that experienced the 2021–22 energy price spike found that NHS reimbursement didn’t fully compensate for the increased costs — the benchmark caps created a gap that fell on the practice.

VAT on GP Surgery Energy: The 5% Opportunity

GP surgeries — as registered medical practitioners providing NHS primary care services — may be eligible for the reduced 5% VAT rate on their energy supplies rather than the standard 20% rate.

The qualifying condition is that the energy is “used wholly or mainly for a charitable purpose” or for “the provision of a qualifying service” — which, for NHS-contracted GP practices providing primary medical services, can qualify for the reduced rate. The specific eligibility determination depends on the practice’s VAT registration status and the nature of its activities.

In practice, many GP practices are either charged at 20% VAT when they should be at 5%, or have never had their VAT rate assessed in the context of their NHS service provision. The difference on a practice spending £15,000 per year on energy is £2,250 per year — recoverable for up to four years if the incorrect rate has been applied.

This is a specific and frequently overlooked saving for GP practices. An energy broker or adviser who hasn’t raised it isn’t providing the full scope of advice the practice needs.

Climate Change Levy for Medical Premises

GP surgeries and other NHS primary care premises may qualify for CCL exemption or reduction on the basis of being a charity (if the practice operates under a charitable structure) or on the basis of qualifying medical or care use.

Most GP practices operate as partnerships rather than charities, which generally means standard CCL applies. However, practices that operate through charitable structures — some GP federations and primary care networks operate charitable arms — may qualify for CCL exemption on energy used for qualifying charitable purposes.

The CCL position should be reviewed as part of any energy contract renewal. For practices spending £15,000–£30,000 per year on energy, the CCL component at standard rates represents £500–£1,000 per year — small individually, but relevant if an exemption or reduction applies.

The NHS Property Services Situation

GP practices operating from NHS Property Services (NHSPS) managed premises have their energy supplied and billed by NHSPS as part of the service charge arrangement. These practices do not procure energy directly and therefore are not in a position to optimise their energy contract independently.

However, NHSPS service charges have been a source of significant dispute in the GP sector — charges that are frequently opaque, difficult to audit, and in some cases significantly above what the practice would pay if it procured energy independently. Practices with NHSPS service charges should review the energy component of those charges and, where disputes exist, engage with NHSPS’s formal dispute resolution process and consider specialist NHS premises advisers.

Independent Practice Premises: The Direct Procurement Case

For GP practices that own their premises outright or lease from a non-NHS landlord, direct energy procurement applies. These practices are straightforward business energy customers — the fact that they provide NHS services doesn’t change the fundamentals of energy contract procurement.

A 5-GP partnership practice in owned premises, consuming 40,000–60,000 kWh of electricity and 50,000–80,000 kWh of gas per year, is a standard mid-market SME energy customer. The contract should be competitively tendered every 12–24 months, the VAT rate should be verified, the CCL position should be confirmed, and the NHS reimbursement claim should be maximised — including any excess over benchmark that can be evidenced to NHS England.

Telnergy’s Healthcare Energy Services

We work with GP partnerships, dental practices, and other primary care providers on energy procurement that accounts for the NHS reimbursement framework, VAT eligibility, and the specific compliance requirements of healthcare premises. If your practice hasn’t had its VAT rate reviewed or hasn’t been through a competitive tender in the last 12 months, we’d recommend a conversation.

📱 WhatsApp Business: 07360 272168

📧 Email: hello@telnergy.com

📞 Direct line: 01202 028888

Telnergy Limited • Independent Energy Consultants since 2002 • Ofgem TPI Registered • Christchurch, Dorset