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Managing indirect tax pitfalls for Clinical Research Organisations

Clinical Research Organisations (CROs), also known as Contract Research Organisations, play a crucial role in advancing medical research and drug development. Due to the complex interactions and status of the supporting organisations, navigating the landscape of indirect taxes - such as VAT and customs and excise duties - can be challenging. In this article, we explore some of the key considerations and potential pitfalls for CROs operating in the UK.

VAT implications for CROs

Pharmaceutical companies
Taxable, VAT reclaim
CROs
Taxable, VAT reclaim
Academic research and universities
Largely exempt, minimal to no recovery
NHS
Eligible for s.41 VAT refund scheme
Hospitals and clinics
Largely exempt, minimal to no recovery
Charity and non-profit sponsors
Largely exempt, minimal to no recovery
General practitioners
Largely exempt, minimal to no recovery
Regulators
May be eligible for s.41 VAT refund scheme

VAT treatment of clinical trials

CROs support a range of services, from managing clinical trials to arranging patient data analysis. The VAT treatment of these services depends on factors such as location, recipient, and the nature of the service.

UK to UK

UK to overseas (B2B)

Reverse charge mechanism

When CROs receive services from non-UK suppliers (eg overseas pharmas), the reverse charge mechanism applies where the service would be subject to VAT if provided by a UK supplier. Under this mechanism, the recipient (CRO) accounts for VAT on the transaction, rather than the supplier.

Customs and excise duties

Importing and exporting goods

CROs often arrange for the import and export of goods (eg medical equipment and investigational drugs) for clinical trials. Key considerations include the below.

Toll manufacturers

CROs may engage toll manufacturers to produce investigational drugs. In such arrangements, the following applies.

Conclusion and recommendation

Managing indirect tax pitfalls requires proactive planning, clear communication, and collaboration with tax advisers.

It is highly advisable for a CRO to map out the tax implications of their supply chain at the earliest stages. Some of the most common pitfalls include confusion created by tripartite arrangements, reclaiming VAT incorrectly charged by other stakeholders, overlooking the self-charge VAT rules, overpaying import and excise duties and understanding who has title to investigational drugs.

It goes without saying that CROs should stay informed about the ever-changing regulatory framework and seek professional guidance to ensure compliance and minimise any tax risks.

authors:scott-harwood,authors:jon-morbin