The UK’s ambition to be a global leader in life sciences and clinical research is increasingly under pressure from recent HMRC VAT assessments on free-of-charge (FOC) medicines used in clinical trials, early access schemes and post-trial continuity of care.
Several pharmaceutical companies operating in the UK have received VAT assessments relating to medicines supplied to the NHS at no cost to patients. In some instances, this has resulted in companies pausing early access or compassionate use programmes, raising concerns about patient access to essential medicines and the UK’s competitiveness as a destination for clinical research.
In this article, Mark Ellis, Partner and VAT specialist, explains how HMRC is interpreting VAT law, the risks for life sciences organisations, and the options available to manage exposure.
Why HMRC is assessing VAT on free-of-charge medicines
HMRC appears to be treating certain clinical trial arrangements as barter transactions for VAT purposes. Under this view, pharmaceutical companies supply free-of-charge medicines in exchange for clinical trial data provided by the NHS. Non-monetary consideration can fall within the scope of VAT, leading to VAT being assessed on a deemed value of the medicines supplied.
VAT risks for early access, compassionate use and post-trial supply
The issue is particularly relevant for Early Access to Medicines Schemes (EAMS), compassionate use programmes and post-trial continuity of care. VAT assessments in these areas represent a direct cost to pharmaceutical companies, as VAT cannot be passed on to the NHS.
Do clinical trial data and IMPs have taxable value?
Only a small proportion of clinical trial medicines ever achieve market approval and investigational medicinal products cannot legally be sold. Both the medicines and the associated trial data often have negligible economic value at the time of supply, raising questions over whether VAT should apply at all.
Existing HMRC guidance
HMRC guidance, including VATVAL05100, VATVAL05900 and Section 19 of the VAT Act, allows flexibility where non-monetary consideration has minimal value. Applying this guidance pragmatically could significantly reduce VAT exposure while remaining compliant with UK VAT law.
What should pharmaceutical companies do now?
Life sciences organisations should review their free-of-charge medicine arrangements, assess VAT risk, document valuation assumptions and engage early with HMRC where appropriate.
How PKF can help pharmaceutical companies
PKF’s specialist VAT and life sciences team can support organisations with VAT risk reviews, HMRC engagement, dispute management and compliant structuring of clinical trial and early access arrangements.
To discuss anything raised in the article in more detail, please contact: Mark Ellis, VAT Partner.
