HMRC v Boehringer Ingelheim Limited: a disappointing outcome for both Boehringer and other pharmaceutical companies operating in the UK.

After a series of EU case‑law developments (see previous publication), the Boehringer Ingelheim Limited decision has now been issued in the UK, and this time it is not in favour of the tax payer.

Background

Boehringer Ingelheim Limited (BIL) is a pharmaceutical manufacturer supplying medicines to wholesalers, mainly for onward supply to the NHS. Those supplies were standard‑rated for VAT.

Under statutory and voluntary NHS pricing schemes, BIL was required to make payments to the Department of Health and Social Care (DHSC) where its sales exceeded agreed caps. BIL treated those payments as retrospective price reductions and sought to reclaim overpaid output VAT.

In 2024, the First‑tier Tribunal allowed BIL’s appeal, holding that the payments constituted post‑supply price reductions and that VAT should therefore be adjusted. HMRC has since appealed that decision to the Upper Tribunal.

Issue at stake

The question is whether the payments made by BIL to DHSC under the NHS pricing schemes constituted retrospective reductions in the consideration for BIL’s original supplies to wholesalers, such that BIL was entitled to reduce the output VAT previously accounted for.

Decision from the Upper Tribunal

In a recent decision, the Upper Tribunal allowed HMRC’s appeal, setting aside the First-tier Tribunal (FFT) decision in most circumstances. It held that, there must be a direct link between the price reduction and an identifiable taxable supply. In overturning the FTT ruling the UT found that DHSC was not part of the supply chain and was providing general NHS funding, not paying for specific medicines and therefore it cannot be treated as a “final consumer”.

As a result, the payments were not considered as a reduction in the taxable amount of BIL’s supplies to wholesalers, and output VAT could not be adjusted.

An exception was recognised in limited circumstances where medicines were supplied directly to DHSC as the final consumer; in that narrow category, the requisite link could exist.

Consequences for businesses

The decision in Boehringer Ingelheim Ltd is important while disappointing for pharmaceutical companies that are affected. The Upper Tribunal allowed HMRC’s appeal, overturning the First-tier Tribunal’s decision that had permitted Boehringer Ingelheim to recover overpaid output tax on these supplies.

Unlike the previous decisions in Germany and Hungary where the ECJ ruled that  payments in question qualify as a price reduction and hence allowing the tax payer to reduce its taxable amount, the Upper Tribunal in the UK has restricted the circumstances in which NHS pricing‑scheme payments can be treated as VAT‑adjustable price reductions. It clarifies that such payments will not qualify unless they are directly linked to identifiable supplies to the final consumer, reinforcing limits on VAT recovery for pharmaceutical manufacturers operating under UK medicines pricing schemes.

Given the amount in questions, it is expected that the case will be taken further to the Court of Appeal.

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