Updated VAT Alert – Welfare services

Rob Geary
Rob Geary, Lovewell Blake

A recent Court of Appeal case has decided against two organisations that provided day care services.

Rob Geary, Lovewell Blake

Neither organisation was a charity and neither was “state regulated” eg registered with the Care Quality Commission. These organisations were considered “private/profit making” bodies even though they supplied services to disabled, vulnerable adults with learning difficulties, some who paid their own fees (under direct payment rules) and others who were referred and paid for by the local council. All had a formal care plan in place agreed with the local social services department.

Under current VAT law, only charities and state regulated private welfare organisations can exempt the supplies of welfare services. Private/profit making organisations that are neither of the above must charge VAT at the standard rate of 20%.

This ruling could affect any organisation that is not a charity, nor state regulated, yet supplying welfare services to the public and being paid. The supplies made will be deemed taxable and once the income exceeds £85,000, the organisation will be subject to VAT registration. HMRC will have the right to impose registration if the turnover exceeded the registration threshold in the past. This could mean a payment of VAT based on income received, less VAT on expenditure incurred.  

June 2021 update:

HMRC have now published a brief which confirms that the organisations services will be taxable. To be VAT exempt, providers must be charities, public bodies or regulated by the authority in the country concerned.

Providers who have not accounted for VAT on supply of these services must do so with immediate effect.

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