The UK government has announced plans to reform the application of value-added tax (VAT) on free medicines provided under early-access schemes, following concerns raised by pharmaceutical companies, charities, and Members of Parliament. The move comes after a backlash from the industry over VAT charges on medicines supplied at no cost to patients through post-clinical trial continuity-of-care or compassionate-use programmes.

Pharmaceutical firms, including Bayer and Johnson & Johnson, had warned that the current VAT rules threatened their willingness to supply free medicines in the UK. Bayer reportedly halted new patient admissions to one of its early-access schemes, while Johnson & Johnson cautioned that it might withdraw participation from similar programmes. These schemes enable patients with life-threatening or severely debilitating conditions to access treatments before they receive marketing authorisation or NHS funding.

In response to parliamentary pressure, Dan Tomlinson, exchequer secretary to the Treasury, acknowledged the difficulties posed by existing VAT regulations. Speaking in the House of Commons last week, he said the government would shortly introduce a new approach involving changes to VAT rules or the introduction of a reimbursement mechanism. He added that the reforms would apply to medicines donated from the date of the announcement onwards.

Industry representatives, however, expressed reservations, noting the absence of retroactive relief for VAT already levied. One source suggested that if the government agreed a remedy was needed, it should extend to past charges as well. The specifics of the reforms are expected to be detailed to the sector by the Office for Life Sciences.

Pharmaceutical companies argue that the VAT on free medicines imposes an unfair financial burden and undermines the UK’s appeal as a location for clinical trials. They contend that added VAT costs discourage companies from maintaining treatment for patients after trials conclude, potentially reducing investment and innovation in the country’s life sciences sector.

Julia Lopez, shadow secretary for science, innovation, and technology, welcomed the announcement, describing the VAT charge as a “cancer drugs tax” with significant human consequences. She called for greater government attention to the challenges faced by life sciences firms, including tax policies, NHS bureaucracy, and energy costs, warning that without intervention, the UK risks losing jobs, investment, and access to advanced treatments.

Tomlinson noted that enforcement by HM Revenue & Customs (HMRC) began under the previous Conservative government in 2023, after identifying businesses that were not complying with the VAT requirements. NHS secondary care minister Karin Smyth emphasized ongoing collaboration between the Treasury, HMRC, and health officials to resolve the matter. She acknowledged the role of early-access and compassionate-use programmes in facilitating timely patient access but underscored that participation remains at the discretion of pharmaceutical companies.

Labour’s industrial strategy has highlighted ambitions to develop the UK into Europe’s leading life sciences hub by 2030, a target seen as potentially jeopardized if the industry’s concerns are not addressed.