HMRC loses claim to deny VAT relief on cancer treatment medicine

The First-tier Tribunal (FTT) has handed down its decision in the case of Clatterbridge Pharmacy Limited v HMRC. This was a dispute concerning the tax treatment of high-value intravenous cancer medicines supplied to NHS hospital outpatients and often administered by healthcare professionals.

Clatterbridge Pharmacy Limited (CPL), a wholly owned subsidiary of Clatterbridge Cancer Centre NHS Foundation Trust, applied the zero-rate VAT relief against its supplies of dispensed drugs under schedule 8 of the Value Added Tax Act 1994. The relief, relied upon by many pharmacy companies, requires drugs to be dispensed to individually named patients for their personal use.

HMRC challenged CPL’s arrangements, arguing the personal use test was not met as the cancer drugs were often administered by third-party healthcare professionals and not by the patients themselves.

Applying the ordinary meaning of statutory language, the tribunal rejected HMRC’s interpretation that private or personal use can only apply where drugs are self-administered by a patient. The court agreed with CPL’s observation that this could create an absurd scenario whereby the VAT relief would move in and out of effect depending on the pharmacist having knowledge of whether a patient is able to self-administer or not, which could of course evolve over time.

The tribunal found the medicines were clearly dispensed for the sole use of named individuals, and that this sufficed for zero-rating. The decision reinforces the principle that statutory language should be given its natural and ordinary meaning unless it can be shown parliament clearly intended otherwise. 

The tribunal was not persuaded by HMRC’s overanalytical approach by trying to insert meaning into the legislation that simply does not exist. The judgment also follows on from the earlier case of Healthcare at Home (UKVAT V20379), dating back almost 20 years ago. Similarly in this case, HMRC tried to narrow the scope of the same VAT relief for a provider offering similar services through a subtly different restrictive interpretation. HMRC ended up losing that case as well.

It may come as a surprise that HMRC took a case against the NHS providing essential services to patients. To the casual observer, it may appear HMRC was looking for its own technical loophole to limit the use of the relief. After the Healthcare at Home case, HMRC has had two bites of the cherry. Whilst it is recognised the medical and pharmacy dispensing landscape has changed from when the relief was first introduced, the natural meaning of the legislation holds true even if it now applies to a wider group of activities than previously existed.

The decision will be welcomed by many pharmacy providers and NHS subsidiaries who rely on zero-rating to manage costs in outpatient care models. Although, at the present time, it is still open for HMRC to appeal the decision. Will it take a third bite?