VATWELF3031 - Welfare services: Conditions for Exemption: Charitable Trust Running a Residential Assessment Centre for Assessing Parenting Capabilities

The appeal by Lilias Graham Trust.to the Upper Tribunal (UT) is reported at [2021] UKUT 36 (TCC)

The taxpayer was a charity. It ran a residential assessment centre where the parenting capabilities of those who were referred to it by a local authority were assessed, in return for a fee, There was a fixed fee per family per week for the services and the average placement was for 12 weeks.

The First-tier Tribunal (‘FTT’) had to decide whether the Appellant’s supplies were directly connected with the protection of children and young persons under Note (6) to Group 7 of Schedule 9 of the Value Added Tax Act 1994 and were thus exempt supplies of welfare services. The FTT held that that they were indeed exempt supplies of welfare services.

There was no appeal to the UT against that conclusion but the FTT’s rejection of an alternative argument was challenged. It had found that the accommodation provided was not covered by the Note (7) exclusion to Group 7 because it was ancillary to the provision of care. This was appealed on the basis that the supply of accommodation was an essential part of the supply and could not be regarded as ancillary.

The UT held that term ‘supply’ in note (7) could not refer to an element of a single supply for VAT purposes. The FTT had therefore not erred in law in deciding not to apply the European case law meaning of ‘ancillary’ because Note (7) pre-dated the decision in Card Protection Plan (C-349/96). In addition, applying the CPP meaning had no apparent rationale. That was illustrated by the Appellant’s argument that its supply of accommodation was not ancillary because it was not a means of better enjoying the principal welfare service. Rather, it was essential and critical to the delivery of that services. The UT concluded that the FTT had been correct to use the dictionary meaning of ancillary and not the European case law meaning. The appeal was accordingly dismissed .