FTT Allows Import VAT Recovery for EU‑Destined Clinical Trial Drugs in Yourway Transport v HMRC

• The First‑tier Tribunal allowed Yourway Transport Ltd’s appeal in part, holding that the company could recover import VAT incurred on trial drugs destined for EU clinics and hospitals during 2019–2020.
• The key was section 47(1) VATA 1994: the Tribunal found that, although Yourway never owned the drugs, it acted as agent for its (mostly US) biopharma clients and did so “in its own name.” That deeming provision treats the import and onward supply as made by Yourway as principal. When combined with paragraph 6 of Schedule 4 (which treats no‑consideration removals of business assets from the UK to another Member State as a supply of goods), the import VAT had the necessary direct and immediate link to Yourway’s taxable (deemed) supplies and was therefore deductible.
• However, no input recovery was available for import VAT on drugs remaining in the UK or exported to non‑EU countries, because neither para 6 of Sch 4 nor s47(2A) could be brought into play; there was no relevant “supply” of those goods for VAT purposes and the input tax could not be linked to Yourway’s taxable outputs. The Tribunal also rejected a public‑law legitimate expectation argument. Quantum is to be agreed between the parties.

The business model and facts that mattered

• Role: Yourway ran a GxP‑regulated UK depot receiving bulk shipments of investigational medicinal products (IMPs) from US biopharma clients. It acted as importer of record, stored under strict temperature control, and picked/packed drugs on demand.
• Orders and title: Delivery instructions came directly from trial sites via IRT (Interactive Response Technology). Drugs were supplied free of charge to sites; Yourway invoiced clients only for services. Title remained with the biopharma company until Yourway delivered to sites.
• Geography: Most ultimate destinations were outside the UK, heavily EU.
• Paperwork: Master service agreements (US law) did not spell out agency or title passage; there were no contracts between Yourway and trial sites beyond IRT orders.
• VAT periods in dispute: 9/19–9/20. Total at stake: £4.33m.

Issues

1. Was the import VAT “input tax”? (s24) That required the goods to be used for the purpose of Yourway’s business.
2. Attributable to taxable supplies? (s26) Required a direct and immediate link to Yourway’s taxable outputs.
3. If not on first principles, did s47(1) deem Yourway to have imported/supplied as principal?
4. Public law fallback: Did HMRC’s conduct (incl. Briefs 2/19, 15/20 and interactions in 2019) create a legitimate expectation that import VAT would be recoverable?

The legal architecture the Tribunal used

1) Agency “in own name” (s47(1) VATA 1994)

• Findings: On a realistic view of the commercial arrangements, Yourway acted as agent for the biopharma owners and acted in its own name in delivering drugs to sites.
• Why it mattered: If s47(1) applies, the goods are “treated as imported and supplied by the agent as principal.” That deeming bridges the ownership gap that often blocks deduction for toll‑like models.

2) No‑consideration supplies (Schedule 4) and the EU dimension

• Para 5 (business gifts/samples and private uses) could not be used as the “route” to deduction here because para 5(5) expressly requires the entitlement to deduction to exist “disregarding this paragraph.”
• Para 6 did apply for EU‑destined drugs: removing business assets from the UK to another EU Member State is a “supply of goods” even without consideration. Yourway, as agent in its own name, was treated as making that taxable supply.

3) Direct and immediate link

Given the s47(1) deeming and para 6 supply, the import VAT on EU‑destined batches had a direct and immediate link to Yourway’s taxable supplies of goods (not services) and was deductible. The Tribunal cited the modern approach to this test (including Hotel La Tour), emphasizing that “cost component” language must not be over‑formalized.

4) Non‑EU or UK‑destined drugs

For goods remaining in the UK or exported outside the EU, there was no relevant supply of goods in Yourway’s hands (free supplies without a para 5 or para 6 hook). s47(2A) could not assist (it presupposes a supply to which s47(1) does not apply). The input tax therefore lacked the required link to Yourway’s taxable outputs.

5) Legitimate expectation

The Veolia/MFK line of authority requires a clear, unambiguous assurance or guidance. HMRC Brief 2/19 and Brief 15/20 did not give such an assurance (indeed, they indicated that owners should be importers/reclaimants), and there was no bespoke ruling to Yourway. The argument failed.