VAT exemption for Welsh care providers: A landmark tribunal decision

Overview

On 7 November 2025, the First-tier Tax Tribunal delivered a significant judgment in Cascade Care Ltd v HMRC, clarifying the VAT treatment of welfare services provided in Wales. This decision has important implications for care providers operating under Welsh regulation and offers reassurance regarding the VAT status of their services.

Background

Cascade Care Ltd, a provider of specialist residential and supported living services for adults with complex needs, challenged HMRC’s interpretation of VAT legislation. The dispute centred on whether services delivered in Wales under the oversight of Care Inspectorate Wales (CIW) qualified for VAT exemption under Item 9 of Group 7, Schedule 9 to the Value Added Tax Act 1994 (VATA 1994).

Cascade argued that because the Welsh Parliament (Senedd Cymru) was not explicitly listed in Note 8, which defines “state-regulated” institutions, their services should be standard-rated for VAT. HMRC disagreed, asserting that the omission was a drafting error and that the exemption should apply.

Key legal issues

The Tribunal considered three main interpretative approaches:

1. Correcting a drafting error – HMRC argued that the omission of the Welsh Parliament from Note 8 was inadvertent and that the Tribunal should read in the missing reference to ensure consistency across UK devolved administrations.
2. Updating construction – This approach suggests that legislation should be interpreted in light of current circumstances, including changes in governance and regulation.
3. Conforming interpretation – Under EU law principles (still applicable via the Finance Act 2024), UK legislation should be interpreted to align with EU directives, particularly the Principal VAT Directive, which aims to ensure fiscal neutrality across member states.

The Tribunal’s decision

Judge Blackwell ruled in favour of HMRC, concluding that:

• The omission of the Welsh Parliament in Note 8 was a clear drafting error.
• It was appropriate to read into the legislation a reference to “an Act or Measure of the National Assembly for Wales”.
• This correction ensures that care services regulated by CIW are treated consistently with those regulated in other UK nations.
• Even if the drafting error had not been corrected, a conforming interpretation would have led to the same result, avoiding a breach of EU law principles on fiscal neutrality.

Implications for care providers

This decision provides clarity and certainty for care providers in Wales:

• Services regulated by CIW are exempt from VAT, aligning with the treatment of similar services in England, Scotland, and Northern Ireland.
• Providers can now confidently structure their pricing and contracts, knowing that VAT will not apply to qualifying welfare services.
• The ruling reinforces the principle that regulatory equivalence across devolved administrations should not result in inconsistent tax treatment.
  

Final thoughts

This case highlights the importance of careful statutory interpretation and the role of tribunals in correcting legislative oversights. For care providers, it’s a welcome affirmation that regulatory changes in Wales do not undermine VAT exemptions intended to support essential welfare services.

If you operate in the care sector and have questions about your VAT position or regulatory compliance, feel free to reach out.