The tax office has been forced into a tactical retreat over a controversial VAT levy on free medicines given to seriously ill patients after British drugmakers warned the policy would threaten the country’s reputation as a global life sciences center.
HM Revenue & Customs has confirmed to the industry that it will suspend enforcement of controversial VAT invoices issued against pharmaceutical companies offering medicines free under early access schemes while Whitehall negotiates a longer-term deal with the sector.
The decline follows growing concern in boardrooms after Bayer, the German pharmaceutical giant, took the unprecedented step last month of stopping enrolling new patients under its British compassionate use program. *Daily Sparkz* understands that at least one other major drugmaker is actively considering a similar withdrawal, raising the specter that vulnerable patients will be denied cutting-edge therapies.
At the heart of the dispute is continuity of care after clinical trials and compassionate use programs. These are agreements aimed at bridging the gap for patients with life-threatening or debilitating conditions who need access to medicines that do not yet have marketing authorization or NHS funding. For many of these patients, the programs provide a clinical lifeline.
HMRC had begun issuing VAT claims to pharmaceutical companies on the grounds that the supply of these medicines, even if free, constituted a taxable transaction. Industry leaders argued the interpretation was not only commercially punitive but also threatened to undermine the UK’s hard-won reputation as a preferred destination for clinical research, a sector that ministers have repeatedly identified as central to the government’s growth ambitions.
The British Pharmaceutical Industry Association has urged ministers to confirm that “clinically justified” free supplies should not fall within the scope of VAT at all. Without that assurance, executives warn, multinational sponsors will simply funnel their next generation of lawsuits to more accommodating jurisdictions.
Following a recent meeting between Treasury officials and pharmaceutical bosses, HMRC politicians have informed the industry that while the agency remains committed to protecting Treasury revenues, it accepts that the Government is “actively considering” the issue. The tax office has therefore agreed to exercise its discretion by extending review deadlines and deferring enforcement action while discussions are ongoing. Crucially, however, HMRC has not changed its mind on historic tax liabilities, meaning invoices already issued remain on the table.
A Whitehall source insisted that no blanket reprieve would be offered and each case would be assessed on an individual basis. “HMRC is not systematically extending review periods,” the source said.
The political temperature has been rising for months. Julia Lopez, the shadow science, innovation and technology secretary, wrote to her counterpart Liz Kendall in February, warning: “The UK’s reputation as the home of clinical research is vital to our status as a life sciences superpower. That reputation is now at risk.”
In a response this month, Lord Vallance, the science minister and a former senior executive at GSK, confirmed that ministers were “aware of the issue” and “how important it is that patients across the UK have access to innovative medicines”. He confirmed that the government was in “discussions with the sector on this matter”, adding: “I fully recognize the concerns you have raised.”
In announcing its decision to suspend new enrollments, Bayer said it provides treatments for patients with “life-threatening, long-lasting or debilitating conditions or conditions that cannot be satisfactorily treated by any medicine approved and reimbursed in the United Kingdom.” Following HMRC’s change of stance, the company said it had “taken the difficult decision to suspend enrollment of new patients” while continuing to care for those already enrolled.
The Treasury claims that “in certain circumstances, the free gifting of goods may fall outside the scope of VAT” and that an exemption may apply where the supply falls within the scope. A government spokesman said: “We are in active discussions with the sector. We fully recognize the importance of early access and compassionate use programs and are fully committed to ensuring that patients can continue to benefit from them.” A government source added that there had been no recent changes to UK VAT policy.
Lopez wasn’t convinced. “While HMRC has suspended this damaging VAT charge and it is still not clear, the damage has already begun,” she said.
For an industry that contributes more than £17 billion a year to the UK economy and employs tens of thousands in highly skilled research roles, the affair has raised greater fears about the predictability of the UK tax environment. With the government betting heavily on life sciences as a driver of post-Brexit growth, ministers will be keenly aware that a quick and clear solution is now required – not least to reassure international boardrooms already considering the next round of investment decisions.
