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HMRC internal manual

VAT Health

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HM Revenue & Customs
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Blood and associated products: recombinant products

Technological and scientific advances in this area have meant that many products normally derived from human blood can now be synthetically produced in a laboratory using a human gene as starting material. The process is called recombinant technology and means that products normally extracted from human blood can be produced in endless supplies in a culture medium, thus eradicating the need for human donors and the possibility of transferring blood-borne viruses. In September 1995 we asked for advice from the Department of Health on the nature of these recombinant products. As a result of this advice, we ruled that from November 1995, supplies of all recombinant products should be standard rated as they were neither human blood nor products derived from human blood; the active ingredient in these products is genetically engineered.

This ruling has attracted a lot of media interest in what is a very sensitive area, particularly from the groups representing haemophiliacs who require Factor VIII - human or synthetically produced - to enable their blood to clot. But it is not just a question of VAT: due to the technology required to produce recombinant Factor VIII, it is more expensive than human Factor VIII and many hospitals were not buying the product even before the addition of VAT. Action groups are using the addition of VAT to these products as a means of highlighting their view that this allegedly safer product should be more readily available in the Health Service. Our stance has been that we cannot extend the exemption to a product which is clearly not covered by the Directive and that we are treating these products in the same way as most other drugs and therapeutic substances sold by wholesalers and manufacturers. Moreover, our treatment of these products is in line with other member states.

A pharmaceutical company appealed Customs’ decision to tax its supplies of synthetically produced Factor VIII to the VAT Tribunal. Customs’ view, as outlined above, was supported by the following Tribunal decision.

The Tribunal in Baxter Healthcare Ltd (VTD 14670) considered whether supplies of recombinant Factor VIII could be exempt under items 7 or 8 of Group 7 to Schedule 9. In considering item 7, the Chairman ruled against exemption on two grounds. Firstly, she stated that the intention of both EU and UK law was to exempt “naturally occurring parts of the human body and not to exempt substances produced as a matter of manufacture or production”. In her view, recombinant Factor VIII did not pass that test. Secondly, she held that that recombinant Factor VIII was not “derived from human blood” because “derived” meant that “there must be some physical connection between the thing derived and the thing from which it is derived” - and recombinant Factor VIII had no physical connection with human blood and so could not be derived from it. The Chairman considered that the product could not be exempt under item 8, as it is not human tissue. Consequently, recombinant Factor VIII was confirmed as standard-rated.