Government confirms increase in tax rate for branded drug manufacturers

Manufacturers will have to pay 26.5% of their net income from sales of branded medicines to the government in 2023.
branded medicines on shelf

Drug manufacturers that are signed up to the Voluntary Scheme for Branded Medicines Pricing and Access (VPAS) will see their tax rates increase by more than 11 percentage points in 2023, the government has said.

The new rate, confirmed on 15 December 2022, means that manufacturers will need to pay the government 26.5% of their net income from sales of branded medicines to the NHS. This comes after the government announced it would increase taxation under the statutory scheme by 14 percentage points to 24.4% in 2023.

Manufacturers supplying medicines to the NHS are required to pay taxes under the statutory scheme but can choose to sign up to the voluntary scheme instead, which offers additional incentives to support innovation.

In guidance published on 15 December 2022, the Department of Health and Social Care explained that the level of taxation under the VPAS is calculated based on the annual growth in sales between 2019 and 2022.

Both the VPAS and statutory scheme are designed to control the NHS branded medicines bill by taxing manufacturers on any additional profits at a variable rate. The VPAS rate previously increased from 5% in 2021 to 15% in 2022.

Mark Samuels, chief executive of the British Generic Manufacturers Association, said the tax increase “will damage the UK’s medicines supply because it will make some products loss-making”.

“It is more than a five-fold tax increase from 2021, and no industry can cope with this unpredictable and exceptional tax volatility,” he said. 

“The high VPAS tax for 2023 risks more medicines shortages, rising prices for the NHS via reduced competition, and new medicine launches to the UK being deferred. I am gravely concerned about this situation.”

Last updated
The Pharmaceutical Journal, PJ, December 2022, Vol 309, No 7968;309(7968)::DOI:10.1211/PJ.2022.1.170204

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