Policy paper

VAT zero rate on donated medicines

Published 28 October 2026

Who is likely to be affected 

Pharmaceutical companies who donate medicines: 

• to the NHS 
• for use in clinical trials
• for the continued treatment of a patient who benefitted from participation in a clinical trial 

General description of the measure 

The measure introduces a VAT zero rate for medicines provided free of charge for the treatment of NHS patients. This is something that can occur through manufacturer-led early access or managed access programmes, or through the government’s Early Access to Medicines Scheme.

The zero rate will also apply to medicines supplied free of charge during a clinical trial, and for the continued treatment of a patient who participated in a clinical trial, whether or not the trial and the post-trial treatment are through the NHS. This confirms medicines can be donated on ethical or compassionate grounds after trial stage without incurring a VAT charge. 

Policy objective 

The policy objective is to protect patients’ access to innovative medicines provided free of charge. By introducing a VAT zero rate, pharmaceutical companies can donate medicines without incurring VAT, helping patients to continue receiving treatment not yet otherwise available.

Background to the measure 

Pharmaceutical companies may provide medicines free of charge in certain circumstances. As well as during clinical trials, medicines may be provided through a variety of routes including:

• for continued treatment of patients who took part in a clinical trial
• through manufacturer-operated patient access arrangements
• under a UK Government scheme administered by the Medicines and Healthcare products Regulatory Agency called the ‘Early Access to Medicines Scheme’ 

While no consideration is paid for the free-of-charge medicines donated in such schemes, they are ‘deemed supplies’, as set out in Schedule 4 of the VAT Act 1994, requiring output VAT to be accounted for on the value of the medicines supplied. That means VAT is incurred even when companies do not charge for the medicines given away for free. This is not specific to medicines, but is a feature of the VAT system where a business gives away its assets, a VAT charge arises even when those assets are given away for free. 

On 23 June 2026, the then Exchequer Secretary to the Treasury announced an intention for a new approach to VAT on free-of-charge donations of medicines. By introducing a VAT zero rate, any disincentive to donate medicines associated with the VAT charge will be removed so that such medicines can continue to be provided free of charge, but without businesses incurring a charge of VAT on the value of the medicines provided. 

This measure will apply to donations of medicines made in the United Kingdom under the circumstances set out in the new legislation, and to the importation of such medicines. 

Detailed proposal 

Operative date 

This measure will have effect from 23 June 2026. 

Current law

Under paragraph 5 of Schedule 4 to the VAT Act 1994, where goods forming part of a business’ assets are disposed of for no consideration, that disposal is treated as a supply of goods for VAT purposes in certain circumstances. Where the goods are subject to VAT at the standard rate, this gives rise to a VAT charge of 20%.

Proposed revisions 

Provision will be made by primary legislation to amend Group 12 of Schedule 8 so that the zero rate applies to the following supplies of medicines provided free of charge: 

• licensed medicines donated to the NHS for use in the treatment of an NHS patient 
• unlicensed medicines donated to the NHS for use in the treatment of an NHS patient 
• all medicines donated through the Early Access to Medicines Scheme
• all medicines donated for use in clinical trials
• for continued post-trial treatment of patients who have benefitted from treatment in a clinical trial 
• all medicines meeting this criteria which are donated through an intermediary

Supplies made during a clinical trial before 23 June 2026 may be treated as samples for VAT purposes. 

An addition will also be made to section 62 of the VAT Act 1994, requiring the recipient of the supply to certify that the medicine will be used for a qualifying purpose. This is to make sure that the zero rating only applies to medicines which are used in the treatment of a patient, under the circumstances outlined earlier.

Summary of impacts 

Exchequer impact (£ million) 

2026 to 2027	2027 to 2028	2028 to 2029	2029 to 2030	2030 to 2031	2031 to 2032
-15	-20	-20	-25	-25	-25

These figures are set out in Table 6.1 of Budget 2026 and have been certified by the Office for Budget Responsibility. More details can be found in the policy costings document published alongside Budget 2026. 

Economic impact 

This measure is not expected to have any significant macroeconomic impacts. 

Impact on individuals, households and families 

This measure is not expected to directly impact individuals, households or families.

Introducing a VAT zero rate for qualifying donated medicines will make sure that pharmaceutical companies will not have to pay VAT on the value of the medicines provided. The measure may therefore indirectly benefit individuals who receive these medicines, by removing a barrier to such donations.

This measure is expected overall to have no impact on individuals’ experience of dealing with HMRC as it does not change any tax administration processes or obligations.

This measure is not expected to impact on family formation, stability or breakdown. 

Equalities impact 

Introducing a VAT zero rate for qualifying donated medicines will make sure that pharmaceutical companies will not have to pay VAT on the value of the medicines provided. This measure may therefore indirectly benefit individuals who receive these medicines, by removing a barrier to such donations. 

In this case, the measure may apply to individuals regardless of their protected characteristics. HMRC does not hold data that it can use to assess whether there are any disproportionate impacts to protected groups. 

Administrative impact on business including civil society organisations 

This measure is expected to have a negligible impact on administrative burden on businesses that donate qualifying medicines free of charge, and on recipients of these medicines, by ensuring that medicines donated free of charge no longer incur a VAT charge.

One-off costs could include familiarisation with this change. Ongoing administrative costs for businesses donating medicines free of charge will include the requirement to obtain and retain certification from the recipient confirming the medicine has been used for a qualifying use. Ongoing administrative costs of the organisations receiving such donations will include issuing this certification. 

This measure is expected overall to have no impact on businesses’ experience of dealing with HMRC as it does not change any tax administration processes or obligations. 

This measure is not expected to impact civil society organisations. 

Operational impact (£ million) (HMRC or other) 

The operational impact is expected to be negligible. Customers will not see any changes to HMRC systems as the measure does not alter existing processes or obligations. HMRC will update public guidance and VAT notices. 

Other impacts 

Other impacts have been considered and none have been identified. 

Monitoring and evaluation 

Consideration will be given to monitoring this measure through information collected from VAT returns and kept under review through existing HMRC compliance processes. 

Further advice 

If you have any questions about this change, contact Eilís Ní Bhriain by email at eilis.nibhriain@hmrc.gov.uk.