In response to an oral question on Tuesday 23 June, I announced that the government will take forward a new approach on VAT on free-of-charge donations of medicines, consisting of either changes to the VAT rules or a reimbursement scheme. I can now give the House further details on this announcement.

Under UK VAT law, some transactions where no money changes hands are treated for VAT purposes as if a supply has been made and so VAT is due – these are known as deemed supplies. These are long standing VAT rules in place to keep the system fair if a business has reclaimed VAT on costs.

Pharmaceutical companies donate certain medicines to the NHS, such as through early access schemes. For many years, under these longstanding VAT rules, some pharmaceutical businesses have been paying VAT on donations of medicines. Other businesses have not, and in 2023 HMRC wrote to the sector to begin the process of making sure firms paid the correct tax.

The Government understands that any additional VAT burden on medicines provided free-of-charge has the potential to impact patient outcomes, and so the Government will bring forward a new approach as soon as possible.

Changes will be effective for donations made on or after 23 June 2026 and the Government will engage with stakeholders on these options.

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