Following defeat in a number of legal cases, and most recently a case with Pennine Care NHS Trust, HMRC has released a Brief on the distinction between care homes and hospitals for the purpose of VAT zero rating or reduced rating. This could open up an opportunity for a reclaim of VAT for the construction/conversion or sale of certain buildings which were standard rated rather than zero rated/reduced rated.
The construction of a care home is zero rated for VAT purposes, however, the construction of a hospital should be standard rated. The Pennine case looked at the construction of a mental health residential facility, with HMRC arguing that this was more akin to a hospital. The court found in favour of the taxpayer.
HMRC’s Brief now distinguishes between care homes and hospitals on the basis of the two key factors of time spent at the facility and level of care given, to take account of the case decision.
- A hospital will aim to treat and discharge patients quickly to make space for new patients, whereas a care home will provide lengthy periods of residence for individuals needing longer term care.
- A hospital will deal with illnesses and conditions requiring appropriately qualified staff to provide medical care whilst care homes provide ‘personal care’ to help enable the individual to look after themselves.
HMRC had previously relied on the personal care point for care homes and argued where there was any medical intervention, then this meant that the building should be treated as a hospital. However, they have now conceded that 'personal care' could include medical treatment in certain cases. This could include the provision of clinical or therapeutic treatment to ease or improve the resident’s health. For example, if there is a treatment centre within the care home, the construction costs for this will now be accepted by HMRC as zero rated provided that it is used at least 95% by residents of the care home and no more than 5% by external patients.
Operators who have previously incurred VAT on services used to build a new care home, or have paid standard-rate VAT on services to convert a building into a care home, and now believe that such supplies would have been eligible for zero rating/reduced rating under the revised policy, may be able to recover the overpaid VAT. It is possible to go back up to four years to claim a repayment.
Please get in touch with our VAT Director, Julian Millinchamp firstname.lastname@example.org if you would like further information.