Residential facilities, such as care homes, are usually operated by private companies, local councils or charitable organisations. The provision of care by regulated care homes is exempt from VAT, meaning that VAT is not charged on the supply to customers, but the care home cannot reclaim any VAT incurred on the costs.
HMRC have now confirmed that it considers the use of the VAT grouping provisions within the structure to be a form of tax avoidance and will be fully investigating the tax affairs of those who have implemented it.
What is the issue?
Charities and regulated bodies put a VAT welfare planning arrangement in place to recover VAT that would otherwise be unable to be recovered under the partial exemption provisions. The structure is effective for welfare services that are provided to local authorities, the NHS and where the VAT grouping provisions are used. It is something that has been used by the industry for several years and usually a care provider looking to use it would notify HMRC and the Care Quality Commission (CQC) pre-implementation.
HMRC have identified a growing use of VAT grouping by state-regulated care providers. Their aim is to recover VAT on costs that relate to supplies of welfare services that would otherwise be exempt from VAT, and are therefore committing tax avoidance. They have promised to fully investigate any tax affairs of those who have implemented it and have also confirmed that they will categorise such people as high-risk taxpayers.
What actions will HMRC be taking?
Where necessary, HMRC will refuse new VAT group registration applications that will implement and facilitate these VAT grouping structures. They will also immediately be launching a programme to review and investigate such instances where it is known or suspected that a tax avoidance scheme is in operation.
Does this affect you?
If your organisation uses VAT grouping structures, you must notify HMRC. With the potential exposure to significant VAT costs and wider commercial implications, the process can become complex. Our expert tax team can advise and guide you through the process to ensure you are not caught out by HMRC. Get in touch with us today to see how we can assist.
