Revenue and Customs Brief 9 (2021) VAT liability of daycare services supplied by private
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Published 11 June 2021
VAT liability of daycare services supplied by private bodies in
England and Wales
Purpose of this brief
This brief explains HMRC’s position following the judgment of
the Court of Appeal in the joint appeals of LIFE Services Ltd and The
Learning Centre (Romford) Ltd and the Supreme Court’s decision to
refuse leave to appeal on 15 January 2021.
The cases concerned the VAT liability of daycare services provided
by private bodies to vulnerable adults in England. The earlier
decisions of the Upper Tribunal were affirmed in both cases.
This confirms that HMRC’s view of what the legislation means
is correct. Providers must be charities, public bodies or regulated by
the relevant authority in the country concerned, in order to be able to
exempt their supply of services.
Who needs to read this
This brief applies to:
- organisations that supply daycare services in England and Wales
(and their advisers)
- businesses with appeals claiming their supply of daycare services
are exempt, where the appeals were stood behind the appeals by LIFE
Services Ltd and The Learning Centre (Romford) Ltd
Background to the
Court of Appeal’s judgment
The supply of welfare services by a charity, or a state-regulated
private welfare institution or agency, is exempt from VAT under Item 9
of Group 7 of Schedule 9 to the VAT Act 1994
The provision of welfare services by private bodies that are not
charities is only exempt from VAT if the body concerned is a
state-regulated, private welfare institution or agency. 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’.
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.
HMRC maintained that the services were subject to VAT at the
standard rate, whereas LIFE Services Ltd and The Learning Centre
(Romford) Ltd contended that they were exempt. The First-tier Tribunal
allowed both appeals. However, the Upper Tribunal 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 to the VAT Act
1994 did comply with the requirements of fiscal neutrality - in doing
so, the Upper Tribunal also decided that devolution arrangements did
not mean that item 9 of Group 7 breached the principle of fiscal
Both LIFE Services Ltd and The Learning Centre (Romford) Ltd
The Court of Appeal’s
On the status of LIFE
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
- 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 are
insufficient to satisfy that test, so do not meet the condition
On the principle of
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:
Imposes a differential VAT treatment between charities and other
Entitles charities to exemption whether or not they are devoted
to social wellbeing.
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:
With regard to point 1, there is no breach of the principle 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.
With regard to point 2, there is 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.
With regard to point 3, there is no breach because 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 and article 132(1)(g) of
the Principal VAT Directive.
The judgment is reported at 2020 EWCA Civ
stood behind LIFE Services Ltd Services and the Learning Centre
HMRC will now write to other appellants asking them whether they
intend to proceed with their appeals, given the Court of Appeal’s
of daycare services in England and Wales who are not charities
Providers who have not accounted for VAT on supply of these services
must do so with immediate effect. Providers who have not accounted for
tax correctly in the past must follow the guidance in Correct errors on your VAT Returns.
This case has no impact on providers of daycare services in Scotland
and Northern Ireland. They are still required to be state-regulated and
will continue to benefit from the exemption as long as they are
About the Author
© Crown Copyright 2021.
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Article Published/Sorted/Amended on Scopulus 2021-06-11 20:49:48 in Tax Articles