Health and Care update: VAT treatment of day care services

Published: Friday 2 July 2021

VAT treatment of day care services

HMRC has published its interpretation of the rules for the VAT treatment of daycare services provided by private bodies to vulnerable adults following a recent Court of Appeal decision.

HMRC advises that the supply of welfare services in England and Wales will only be exempt from VAT where the providers are charities, public bodies or regulated by the relevant authority in the country concerned.

In the Court of Appeal case, it was held that neither of the appellants in question were charities nor state regulated. They were instead determined to be unregulated private bodies even though the individuals they provided their services to were disabled, vulnerable adults with a formal care plan in place with the local social services department. 

In some cases, the fees were paid directly by the individual receiving the service and in others, they were paid for by the local authority. It was noted that, although the local authority monitored and inspected the daycare service, it was not regulated by the Care Quality Commission.

It was therefore concluded that the services were not exempt from VAT and should instead be subject to VAT at the standard rate of 20%. HMRC has since published details in a Customs Brief to reflect this decision which can be found here.

In summary, private day care providers in England and Wales that have not accounted for VAT on such services to date will need to do so with immediate effect (if the value of their taxable supplies has breached the VAT registration threshold) and will also need to consider their historic position. The position is different for operators in Scotland and Northern Ireland, as the provision of daycare services is subject to regulation in those countries.

In the case of an institution that is state-regulated in respect of certain activities (e.g. a care home providing residential care), it should be noted that the VAT-exemption only covers those activities for which it is subject to regulation, so a daycare service provided by a care home would fall outside the VAT-exemption, and could contribute to the operator being required to register for VAT.