Policy paper

Use of VAT grouping within the care industry

Published 24 April 2025

© Crown copyright 2025

This publication is licensed under the terms of the Open Government Licence v3.0 except where otherwise stated. To view this licence, visit nationalarchives.gov.uk/doc/open-government-licence/version/3 or write to the Information Policy Team, The National Archives, Kew, London TW9 4DU, or email: psi@nationalarchives.gov.uk.

Where we have identified any third party copyright information you will need to obtain permission from the copyright holders concerned.

This publication is available at https://www.gov.uk/government/publications/revenue-and-customs-brief-2-2025-the-use-of-vat-grouping-within-the-care-industry/use-of-vat-grouping-within-the-care-industry

Purpose of this brief

This brief outlines HMRC’s treatment of state-regulated care providers that form a VAT group with a non-state-regulated provider of welfare services — this is typically referred to as ‘residential care’.

These VAT group structures involve both:

  • a provider which is not state-regulated — meaning they are not registered with the Care Quality Commission (CQC) in England or the equivalent bodies in Northern Ireland, Scotland and Wales
  • a provider that is state-regulated

Who should read this brief

This brief is relevant to:

  • state-regulated care providers registered with the CQC in England or equivalent bodies in Northern Ireland, Scotland and Wales
  • advisors to state-regulated care providers
  • members of VAT groups, or those involved in their administration, who provide services in the care sector
  • local authorities and NHS Integrated Care Boards (NHS ICB)

HMRC’s treatment of state-regulated care providers who form a VAT group with a non-state-regulated care provider

HMRC has identified a growing use of VAT grouping structures by state-regulated care providers to recover VAT on costs that relate to supplies of welfare services that would otherwise be exempt from VAT.

These structures incorporate an unregulated entity into the supply chain between the state-regulated provider and the local authority or NHS ICB to which the supply is made. Identical supplies made to private individuals remain exempt from VAT.

HMRC consider these VAT grouping structures to be a form of tax avoidance and will take the following actions with immediate effect.

New VAT group applications

HMRC will make full use of its powers to protect VAT revenue and, where necessary, refuse new VAT group registration applications that are designed to implement and facilitate these VAT grouping structures.

Existing VAT groups

Organisations currently using these VAT grouping structures may want to review their current VAT accounting practices independently and get professional advice.

HMRC is launching a programme to review and investigate all instances where it is known or suspected that an avoidance scheme is in operation within a VAT group arrangement. During this review HMRC:

  • may request additional information
  • will assess each case individually
  • where necessary, will exercise its Protection of the Revenue powers under Section 43C(1) of the Value Added Tax Act 1994 to remove the relevant parties from VAT groups

HMRC will begin their investigations immediately. Any termination notices issued under these powers will only take effect once the investigation is complete.

If you believe that your business’s arrangements fall within the description given in this brief, you should:

Find more information on HMRC’s Protection of the Revenue powers.

HMRC’s wider approach to tax avoidance

If you’re involved in a tax avoidance scheme HMRC will fully investigate your tax affairs and may treat you as a high-risk taxpayer. This means HMRC will closely inspect all of your tax affairs in future, not just your use of the avoidance scheme.

Find more information on tax avoidance.

Further help

If you need further information, you can contact HMRC online.

Back to top