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Liz Hill and Rob Geary talk about the VAT liability of day care services

The VAT liability of day care services

By: Liz Hill and Rob Geary Date: 9 July 2019
Category: VAT,News

For some time now, VAT has not been applied to welfare services when supplied by either a charity, a public body or a state-regulated private welfare institution or agency. Such services are seen as exempt, which means no VAT is charged to the customers. This also means that no VAT is recoverable on expenditure incurred by the supplier.

What are welfare services?
Welfare services are directly connected with the:
  • provision of care, treatment or instruction designed to promote the physical or mental welfare of elderly, sick, distressed or disabled persons,
  • care or protection of children and young persons, or
  • provision of spiritual welfare by a religious institution as part of a course of instruction or a retreat (it must not be designed primarily to provide recreation or a holiday)

What does ‘care, treatment or instruction’ mean?
As far as HM Revenue & Customs (HMRC) is concerned, ‘care, treatment or instruction includes the protection, control or guidance of an individual when this is provided to meet their medical, physical, personal or domestic needs.’

In the case of ‘instruction’ specifically, this must relate to the care or treatment of an individual and does not include supplying information in the form of advice, or to help that person make an informed decision.

For a service to be exempt under this heading the following must apply:

  • the recipient must be an elderly, sick, distressed or disabled person
  • the care, treatment or instruction must be part of, and related to, a specific individual care plan
  • an assessment of the recipient’s health condition and medical needs has been carried out by an appropriately trained person

Examples of exempt services include:
  • personal or nursing care (including assistance with bathing, dressing, toileting and other personal hygiene)
  • general assistance and support with everyday tasks such as form filling, letter reading or writing, bill paying
  • certain routine domestic tasks
  • counselling
  • looking after or supervising vulnerable people
  • support or instruction designed to develop or sustain a person’s capacity to live independently in the community
  • protection, control, guidance or companionship that is required to meet an individual’s personal or domestic needs
  • residential care, including accommodation, board and other services provided to residents as part of a care package

Many day care centres are operated by non-profit making bodies that are just short of being charities. They provide many of the services listed above at day centres all over the country. If these bodies are state regulated HMRC does not require the body to account for VAT. To be state regulated this means they are:

Registered with, or regulated by, one of the following regulatory bodies:
  • Care Quality Commission (CQC)
  • Scottish Commission for the Regulation of Care (The Care Commission)
  • Care and Social Services Inspectorate Wales
  • Northern Ireland Regulation and Quality Improvement Authority
  • Office for Standards in Education (OFSTED)
  • any other similar regulatory body

State regulated private welfare agencies include domiciliary care agencies, independent fostering agencies, voluntary adoption agencies and nurses’ agencies.

A welfare provider becomes state regulated when the relevant regulatory body approves its application to register. The provider is not state regulated whilst its application is under consideration. During this period the supply of these welfare services is not exempt.

If the body is not required to be registered with a regulatory body, then it does not qualify as state regulated.

Recent case law
Recently two separate bodies were taken to a Tribunal to establish whether they were state regulated as they felt being approved by their local authority and having all staff DBS checked counted as being state regulated. One body also sought to argue that the services are exempt in Scotland but not in England or Wales, thus creating an issue of fiscal neutrality. The cases were heard in the Upper Tier Tribunal and HMRC won both.

Both of these cases are being appealed and will be heard in October 2019 at the Court of Appeal. We will report back when we have further information.

In general terms, a private body that operates as a day care facility but is not regulated by, say, the CQC, will be not be considered state regulated and any charges it makes to customers will be subject to VAT if the annual turnover exceeds £85,000 in any 12-month period.

This means VAT at 20% needs to be accounted for on charges made to local councils or private individuals who manage their own funds. A local authority is able to reclaim VAT under a special scheme operated by HMRC, but this is not the case for private individuals. On the other side, such bodies can reclaim VAT on expenditure incurred such as equipment, utilities, repairs and maintenance of property, professional fees etc.

Day care providers that are not charities or public bodies need to review their income on a monthly basis to ensure the £85,000 limit is not exceeded. If it is, then VAT registration is compulsory.

Lovewell Blake offers a review of day care service providers to assist in determining the VAT liability of its services and can assist you accordingly. Please contact us if we can help you.
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