Compassionate Use Medicine Schemes: VAT

Commons Urgent Question

The following Answer to an Urgent Question was given in the House of Commons on Thursday 11 June.

“It is very important for patients to have access to innovative medicines as quickly as possible, especially where there is unmet clinical need or no alternative treatment. We are working to streamline the decisions of the National Institute for Health and Care Excellence and the Medicines and Healthcare products Regulatory Agency so that NHS patients benefit from the latest medicines as soon as they are proven to be safe and effective.

Early access and compassionate use programmes can play an important role in enabling patient access to medicines ahead of routine commissioning decisions. However, we should be clear that these programmes are commercial decisions taken by pharmaceutical companies: companies choose whether and how to provide medicines free of charge to patients and the NHS before the medicines go through licensing, post-trial access or a funding decision.

The tax system is, as Members know, a matter for the Chancellor, so I will not get into details about that at the Dispatch Box, but under long-standing VAT rules, supplies of goods free of charge can still be treated as taxable ‘deemed supplies’ where input tax has been recovered. That means that VAT can apply even where no payment is made, reflecting established principles of the tax system. We recognise the concerns raised by industry and others about the potential impact of this treatment on the provision of free-of-charge medicines. We are working closely with the Treasury and His Majesty’s Revenue & Customs to explore options to address these issues, as witnessed by my honourable friend the Exchequer Secretary to the Treasury, who is here with me on the Front Bench. We will carefully consider the legal, fiscal and operational implications of any potential changes. Until then, we will continue to engage constructively with industry, the NHS and all our partners to make sure that British patients, whom we have in our thoughts at all times, have access to innovative medicines”.

My Lords, I thank the Minister for accepting this Urgent Question repeat. Life science companies have warned that the decision to charge VAT on early access and the innovative medicines that they provide free of charge could lead to them ending providing these free treatments to patients before routine NHS funding is available. The second fact is that recently released government papers reveal that the Cabinet is being asked to look at who they can tax to pay more in benefits. I have three quick questions. First, can the Minister unequivocally state that these two issues are not linked? Secondly, what discussions have the Government had with life science companies, especially those that have raised concerns over charging VAT on free medicines? Thirdly, have the Government looked at whether they could spend that revenue from VAT on improving access to innovative medicines?

It is important to say, first, that this is not a new policy. There is recognition that while early access and compassionate use programmes are crucial, they are voluntary for pharma companies, which are aware, as I say, that VAT is applicable in these instances; it has been in place for decades. To be brief in answering the questions, first, I am not aware of the second issue that the noble Lord raised with regard to discussions—this is a totally different matter, in any case. Secondly, we are working closely with pharma companies, patients and anybody else who needs to be involved to find a sensible solution on this long-standing policy, which I understand was particularly discovered in 2023 by HMRC—so we are dealing with it from then. I have forgotten the third question, but I would be happy to write—oh, I know it. Yes, we always look at where revenue can be used, in a generic sense, but what matters here is that is not new. It was discovered in 2023, and it is entirely up to pharma companies—to which we are most grateful for the compassionate use of medicines, I should add—whether they wish to do it.

My Lords, compassionate use and early access schemes are often the only way for patients with rare cancers to access life-extending medicines. What assurance can the Minister give that HMRC’s approach to VAT will not result in patients losing access to these vital treatments? What discussions about the impact has the department had with cancer charities?

Cancer charities are important in this area, and we are certainly engaging with them; they are very invested partners. I understand why people are concerned. This is not instead of the NHS. NHS medicines are provided on the advice and guidance of NICE, and that absolutely continues. As I say, what we need to do, and what we will do, is work with everyone concerned to find a solution quickly, because we want to support the pharma companies that continue to donate what are very important medicines.

My Lords, do the Government recognise that it has been estimated that, for each pound invested in research, there is an approximate 25p return on that in perpetuity. Therefore, we should avoid anything which disincentivises research investment in this country, which would include the inability to recruit patients if they have to be told that, even if the treatment is successful, they will not be able to access it on the NHS afterwards because the NICE approval processes are too slow for many of these substances. Will the Government therefore undertake to speed up the NICE assessment processes to make sure that patients are not disadvantaged and research is not disincentivised?

Indeed, we will. I can tell the noble Baroness how important speeding up access to medicines is. That is why, in April, we introduced the joint MHRA-NICE pathway for medicines, which will speed up access to new medicines by some three to six very valuable months. We have also brought in the early access to medicines scheme, the Innovative Licensing and Access Pathway, and the innovative medicines fund. All these mean that, across the regulatory and access system, innovative treatments will be available to patients who need them earlier, as the noble Baroness rightly called for.

My Lords, going back to the question about access to compassionate medicine, as I understand, the Minister just stated that medicines that are not yet authorised or licensed can be issued if companies agree to provide them for free, and that HMRC charges VAT on them. If the medicines are free, how do you calculate VAT? If a shop gives away free chocolates, does it have to pay VAT?

I am sure that the noble Lord would not want me to be quoted as suggesting that VAT should be charged on chocolates given free in shops, so I will not. The way in which VAT is calculated is a long-standing arrangement that companies are aware of. The medicines are treated as taxable deemed supplies, which means that VAT is applied even when no payment is made. VAT is worked out by calculating the value of those products, but if there is nothing similar, then an assumption is made. This is a usual way of dealing with that. I should also emphasise that VAT is a matter for His Majesty’s Treasury and has been for all these decades.

Can I bring the noble Baroness back to the last part of my noble friend’s question? It looks as though the VAT department in HMRC is behaving most peculiarly. First, it lost the case about VAT on entry to the Great Yorkshire Show, yet it is fighting every single show rather than giving way to what the law says. Secondly, it lost the case about VAT on charging your EV, but it has been putting off taking that in and will now appeal, against all the interests of the Government. Now we have this case. It is perfectly right for the noble Baroness to say that this is a long-standing thing, but can she join with fellow Ministers and say that it is about time that HMRC recognised that it is a public service, that it ought to look at what it is doing and that it ought not to hold up changes which the law has insisted it makes?

Again, I appreciate the invitation to enter into conversations about VAT more widely, which I will resist. Certainly, HMRC is aware of its role. We are trying to find the right way forward with HMRC while the issues are resolved, because patients are at the heart of this. HMRC is already using its discretion to extend deadlines where appropriate and suspend collection of tax if a taxpayer has requested a statutory review. It does not mean that HMRC has changed its mind on past liabilities, but it does mean that, if taxpayers and companies have concerns, they have a direct line to it. We are working carefully and closely with industry, patients, charities and others to find the right way forward as soon as possible.

What data is there on patients who have been or will be denied treatments that they would otherwise have had? Does the Minister have any estimate of the amount of revenue expected to be raised from this? Are there plans for proper exemptions for patients who are in desperate need of this type of medicine and who may well then not be able to access it?