Do care homes pay vat?
The starting point is to consider whether those costs are incurred in the making of taxable supplies. Certain supplies, such as those in the health and welfare sector tend to be exempt from VAT. Therefore, any VAT costs incurred in the making of exempt supplies are generally not recoverable, subject to a de minimis test.
Are care homes vat exempt?
Can exempt supplies be changed into taxable supplies to enable full recovery of VAT on costs, or can taxable supplies be changed into exempt supplies to benefit customers?
There are HMRC cases that explore this very question. The businesses were profit making limited companies who provided day care services for adults with disabilities at various locations. The services included anything from personal assistance to activities, games and help with everyday tasks. The services are carried out in accordance with strict guidelines from the local authority, with formal care plans for each attendee being in place.
Contained within the legislation for VAT exemption (Item 9 Group 7 Schedule 9) is the provision of ‘welfare services’ by a ‘charity…, state regulated institution or a public body’. Broadly speaking, charities, those registered with the Care Quality Commission or public bodies providing welfare services, should supply exempt welfare services. This means that whilst VAT is not charged on ’supplies’ to ’customers’, the business cannot reclaim any VAT incurred on costs.
HM Revenue and Customs (HMRC) successfully argued that the businesses in this case failed to meet any of the above criteria, specifically, they were profit making businesses, not a charity, nor a state regulated institution or public body and therefore the supplies were subject to VAT. In contrast, the businesses wanted their supplies to be exempt from VAT as many of their customers were private individuals paying for services with their own funds.
In what is a lengthy and detailed tribunal report and appeal decision, the position remains unchanged and both businesses were deemed to be making taxable supplies. There is a clear line between charities and businesses. However, despite arguing it would be unfair for a charity to make exempt supplies when a business making the same supplies would need to charge VAT, the Tribunals decision was unanimous. When the underlying supplies are the same, the ruling was that the VAT position should still be determined by the legislation.
Can care homes claim vat back?
Whilst the decision leaves little room for doubt on this occasion, there are known ways for other predominantly exempt businesses, such as care homes, to structure themselves in such a way to make some or all of their exempt supplies, taxable and therefore benefit from recovering VAT costs. Ultimately the VAT legislation needs to be followed to the letter to ensure compliance but the fact there are ways to achieve some VAT recovery in a typically exempt industry shows it is always beneficial to seek advice.
Find out more about how we work closely with our Care Home clients to provide proactive advice and reliable compliance services here.
If you are interested in further details on this case and its potential implications for your business, please contact Rob Geary.