Boehringer Ingelheim's £21 million VAT victory: An important ruling on NHS pricing and rebates

These payments, which were calculated as a percentage of Boehringer Ingelheim’s net sales, were made after the medicines had already been supplied to the NHS, adding complexity to the VAT treatment of the transactions. The recent ruling by the (FTT) has clarified that these rebate payments should reduce the consideration Boehringer Ingelheim received for its medicines, allowing the company to reclaim overpaid VAT— a decision that potentially has wide-reaching implications for the pharmaceutical sector and VAT policy in the UK.

Using the principles established in European VAT case law, the FTT held that Boehringer Ingelheim was entitled to make the claim under Article 90(1) of the European Principal VAT Directive, which requires VAT due on sold goods and services to be reduced as a result of their price being reduced after their supply has taken place. Whilst the claim covers a six-year period (rather than the usual four-year period for VAT reclaims), the case refers to five error correction notices submitted within that period. Thus, the limit on the period any other claimant can go back to obtain a refund is still four years (VATA s80(4)). 

Specifically, FTT found that the rebate payments effectively reduced the total consideration Boehringer Ingelheim received from the NHS after it sold its products to the UK national healthcare provider. This was because:

• The medicines sold were subject to VAT (at the standard rate of 20%).
• The purpose of the schemes (under the NHS 2006 Act) was to limit prices charged by suppliers like Boehringer Ingelheim.
• Prices were limited by requiring the supplier to pay the NHS via the DHSC, the amounts calculated by reference to its sale of medicines to the NHS.
• Boehringer Ingelheim submitted quarterly returns of its UK-wide sales of the medicines and made payments in accordance with the returns.
• There was a direct link between the supply of medicines and the consideration actually received for them.
• The value of the medicines sold, which served as the basis for the VAT collected by HMRC, could not exceed the consideration paid by the final consumer. The FTT considered that to distinguish between DHSC and the NHS would be artificial. The final consumer was the NHS since, in economic reality, it bore the cost of Boehringer Ingelheim’s supply at the stage of final consumption.
• The NHS (DHSC), as final consumer, was not required to participate in the contractual chain (i.e. the distribution of Boehringer Ingelheim’s medicines to the NHS/DHSC was facilitated by UK wholesale distributors).

Although it is expected that HMRC will appeal this decision (given the large amount of VAT at stake), it is important to note that the ruling was a tightly argued decision, making it challenging for HMRC to seek leave of appeal.

This ruling is an important decision in the context of VAT treatment within the pharmaceutical sector, and its implications extend far beyond just Boehringer Ingelheim. The UK’s pharmaceutical pricing schemes — such as the Pharmaceutical Price Regulation Scheme (PPRS) and the Voluntary Scheme for Branded Medicines Pricing and Access (VPAS) — are designed to control the cost of medicines for the NHS, ensuring that taxpayers are not overburdened by high prices. These schemes, however, also create complex financial arrangements where suppliers, like Boehringer Ingelheim, must make rebate payments to the NHS based on the sales of medicines. 

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