Summary
- On 2 July 2026, Exchequer Secretary to the Treasury Dan Tomlinson issued, confirming the Government will bring forward “a new approach on VAT on free-of-charge donations of medicines” — either changes to the VAT rules or a reimbursement scheme. Mirrored in. Deemed-supply rules had exposed pharma donors to VAT since 2023 HMRC enforcement. [questions-…liament.uk] [questions-…liament.uk] [questions-…liament.uk], [questions-…liament.uk]
- Scope: donations of medicines to the NHS under compassionate-use, expanded-access and early-access programmes. Effective date: changes will apply to donations made on or after 23 June 2026 (the date of the earlier oral announcement in HCWS141). Stakeholder engagement on the two design options (rule change vs. reimbursement) now begins. [questions-…liament.uk], [vatupdate.com]
- Impact for pharma VAT teams: review open assessments, pending appeals, and internal accruals for deemed supplies of donated medicines; recalibrate provisioning; consider whether recovery/reclaim positions are opened up by the 23 June 2026 effective date; contribute to HMRC’s consultation on rule-change vs. reimbursement design. [vatupdate.com]
Article
On 2 July 2026, Exchequer Secretary to the Treasury Dan Tomlinson MP delivered to the House of Commons — mirrored in the House of Lords as HLWS178 by Lord Livermore () — providing further detail on the Government’s approach to VAT on free-of-charge donations of medicines. This follows the initial announcement in response to an oral question on 23 June 2026 (part of the wider). [questions-…liament.uk] [questions-…liament.uk] [vatupdate.com] [questions-…liament.uk], [questions-…liament.uk]
The problem. Under UK VAT law, some transactions where no money changes hands are treated for VAT purposes as if a supply had been made —“deemed supplies” — with VAT due, in order to keep the system fair where a business has recovered input VAT on costs. Applied to pharmaceutical donations under early-access, expanded-access and compassionate-use programmes, this generated:
- Substantial VAT assessments on cost-build-up when medicines were donated to the NHS;
- Inconsistent treatment across the sector — some firms paid VAT, others did not — prompting HMRC’s 2023 compliance exercise to align practice;
- Concerns that the additional VAT burden on free-of-charge medicines had “the potential to impact patient outcomes”. [questions-…liament.uk], [vatupdate.com]
The Government’s response. HCWS177 confirms two possible design routes and one clear effective date:
- Either changes to the VAT rules (e.g. carving these donations out of the deemed-supply framework, or a targeted zero-rate/exemption), or
- A reimbursement scheme compensating donors for VAT incurred on donations;
- Effective for donations made on or after 23 June 2026;
- Stakeholder engagement to select and design the option. [questions-…liament.uk]
Wider context. As, this measure sits within the broader HMRC Tax Update 2026: Simplification, Modernisation and Fairness, a package of 40 measures — several of which directly impact VAT, e-invoicing, customs and indirect tax compliance. The written statement is welcome news for pharma indirect tax teams that have been carrying provisions or contesting assessments in ongoing HMRC enquiries. [vatupdate.com] [vatupdate.com]
Practical actions for pharma VAT & tax teams:
- Map all NHS donation flows (compassionate-use, expanded-access, early-access; and any similar UK charitable donation programmes) and the associated VAT positions since 2023;
- Review open HMRC enquiries, assessments and appeals for donations dated on/after 23 June 2026 — new approach will apply prospectively;
- Recalibrate internal accruals and provisions for deemed supplies of donated medicines;
- Participate in HMRC/HMT stakeholder engagement to shape design (rule change vs. reimbursement scheme — each has very different admin, cashflow and compliance implications);
- Coordinate with group tax, regulatory and NHS commercial teams to ensure contracting language for future donations is aligned with the emerging framework.
Sources
- Original alert: (EY Weekly VAT News) [euautomation.com]
- HCWS177 (Commons): [questions-…liament.uk]
- HLWS178 (Lords): [questions-…liament.uk]
- Hansard: [hansard.pa…liament.uk]
- Parallel Parliament: · [parallelpa…ment.co.uk] [parallelpa…ment.co.uk]
- VATupdate commentary: [vatupdate.com]
Latest Posts in "United Kingdom"
- Upper Tribunal allows HMRC appeal: Invisalign aligners are NOT “dental prostheses” and are standard-rated
- Court of Appeal: supplies of education by alternative providers qualify for VAT exemption
- UK — FTT: economic activity ceased on sale of business, but sale of IP was separate economic activity
- UK Flat Rate Scheme Under Review
- UK: VAT Changes under HMRC’s 2026 Transformation Roadmap
