VATWELF2095 - Which bodies provide exempt welfare services?: what are state-regulated private welfare institutions and agencies?: VAT liability of daycare services supplied by private bodies in England and Wales
The joint appeals of LIFE Services Ltd and The Learning Centre (Romford) Ltd were previously reported in Revenue and Customs Brief No 9 (2021)
The Court of Appeal released its judgment on 25 March 2020. The Supreme Court subsequently refused leave to appeal on 15 January 2021.
The cases:
LIFE Services Ltd provided services to individuals under a formal care plan agreed with the local authority, following an assessment of the individual’s needs and the setting of a personal budget for care and support. The local authority made payments either directly to LIFE Services Ltd, or indirectly, where the individual or carer was managing the budget. The local authority monitored and inspected the daycare service. It was not regulated by the Care Quality Commission.
The Learning Centre (Romford) Ltd accepted individuals who had already been assessed by their local authority and had a care plan. Most of its fees came from the local authorities, with parents or carers providing some funding. Its services were not regulated by the Care Quality Commission
The result of the appeals
The cases concerned the VAT liability of daycare services provided by private bodies to vulnerable adults in England. The decisions of the Upper Tribunal were affirmed in both cases. The UT had decided that
• LIFE Services Ltd was not a state-regulated, private welfare institution or agency
• in both cases, item 9 of Group 7 of Schedule 9 complied with the requirements of fiscal neutrality - in doing so, the UT also decided that devolution arrangements did not mean that item 9 of Group 7 breached the principle of fiscal neutrality
The position now
This confirmed HMRC’s view that providers must be charities, public bodies or regulated as private welfare institution or agency by the relevant authority in the country concerned, in order to exempt their supply of services under Item 9 of Group 7 of Schedule 9 to the VAT Act 1994. Note (8) to Group 7 of Schedule 9 to the VAT Act 1994 defines ‘state-regulated’, as ‘approved, licensed, registered or exempted from registration by any Minister or other authority pursuant to a provision of a public general Act’.
The appeals and the Court of Appeal’s judgment on he alleged breach of fiscal neutrality
On the status of LIFE Services Ltd
With regard to whether LIFE Services Ltd is a ‘state-regulated private welfare institution or agency’ as defined within item 9 of Group 7 of Schedule 9 to the VAT Act 1994, the Court of Appeal held that:
• what is required is that the institution or agency is ‘approved, licensed, registered or exempted from registration in respect of the supply of welfare services by any Minister or other authority pursuant to a provision of a public general Act’
• the various provisions of law relied on by LIFE Services Ltd were insufficient to satisfy that test, so did not meet the condition.
On the principle of fiscal neutrality
Both LIFE Services Ltd and The Learning Centre (Romford) Ltd contended that item 9 of Group 7 of Schedule 9 to the VAT Act 1994 contravened the principle of fiscal neutrality, because it:
1. Imposes a differential VAT treatment between charities and other private operators.
2. Entitles charities to exemption whether or not they are devoted to social wellbeing.
3. Causes differential treatment of providers of daycare services between those in England and Wales who are not subject to state regulation and those in Scotland and Northern Ireland who are.
The Court of Appeal held that:
There was no breach of the principle of fiscal neutrality because item 9 distinguishes between private welfare bodies that are subject to some form of regulation and those that are not. Charities are not ‘state-regulated’ but are required to be established solely for charitable purposes that are for the public benefit and are subject to supervision by the Charity Commission. The average consumer would see little relevant difference between services provided by charities and those provided by state-regulated private providers.
There was also no breach because it is implicit that the exemption only applies to charities who supply welfare services in accordance with the specific charitable purposes specified in their constitutions. Further, item 9 does not itself discriminate between private welfare providers located in the different nations of the UK. It only discriminates between state-regulated providers and non-state-regulated providers. The reason why certain providers do not qualify as being ‘state-regulated’ is immaterial.
The court concluded that the services did not meet the terms of Item 9 of Group 7 of The VAT Act 1994 both before and after the UK‘s exit from the European Union.
The cases had no impact on providers of daycare services in Scotland and Northern Ireland. provided they are still required to be state-regulated they will continue to benefit from the exemption as long as that position continues.