Summarised below is the opportunity to reclaim VAT for the past on rebates made to the NHS. This is relevant to the suppliers of drugs to the NHS who participate in the voluntary scheme for branded medicines pricing and access or have participated in the Pharmaceutical Pricing Regulation Scheme prior to 2019.
The Voluntary Scheme for Branded Medicines Pricing and Access replaced the 2014 Pharmaceutical Price Regulation Scheme in 2019. Much like its predecessor, the scheme is an agreement between the UK government, NHS and the pharmaceutical Industry aimed at setting a cap on NHS spending on pharmaceuticals. Where the NHS spends over the cap, pharmaceutical companies involved in the scheme will give any overspend back to the NHS in the form of a rebate.
It is common practice for rebates on the sale of drugs to the NHS under either of these schemes to be paid directly to NHS England. Where VAT was chargeable on the initial sale of the drug there is an opportunity for the supplier to reclaim the corresponding VAT element of the rebate. In our experience, HMRC do not accept that adjustments can be made but there is a body of case law which suggests HMRC are incorrect with this approach. We understand that pharmaceutical companies are now making claims to recover overpaid VAT (resulting in the likelihood of the point being litigated). In our experience, many pharmaceutical companies have not made the relevant adjustments to their VAT accounts for the rebate due to the position of HMRC and so there is an opportunity to make a retrospective claim. This can go back a number of years and therefore, depending on the circumstances, the amount involved can be significant.
It is worth noting that due to the statute of limitations businesses should review whether a claim is appropriate. If claims are not made it is possible that VAT previously over-accounted for may fall out of the time frameand will no longer be recoverable. Submitting a claim can help protect the position of the business.
There is a related issue as to whether the sale of the drugs to the NHS should be subject to VAT at 20% or zero-rated (0%) in the first place. Although it is expected that most sales will be subject to VAT at the standard rate, this is a complex area of VAT legislation which often causes confusion and is subject to scrutiny from HMRC. Since the NHS cannot reclaim the VAT charged on the purchase of drugs, depending on the facts, there may be additional opportunities for suppliers to mitigate VAT cost of the onward supply, where zero-rating is available.
Who is affected?
Pharmaceutical companies, or third parties in the supply chain, supplying drugs to the NHS who have paid rebates to NHS England now or in the past.
If you have made any rebates in the past and/or would like to review the VAT treatment of your supplies of drugs to the NHS, please Simon Atkins.