HMRC focusses on VAT group arrangements within the care sector

HM Revenue & Customs (HMRC) has published a new brief targeting the use of VAT groupings within the care sector which include unregulated providers. The new brief indicates that HMRC could investigate any care provider that utilises such VAT group arrangements. Care providers who have adopted such arrangements are urged to carry out a review.  

VAT groupings 

Some care providers have adopted arrangements that are aimed at improving VAT recovery. In a typical situation, a regulated care provider (i.e. a company that is registered with the Care Quality Commission or an equivalent regulatory body) contracts directly with a local authority or the NHS to provide the care services. These supplies are VAT exempt with the result that VAT is a real cost to the regulated provider.  

The structure being targeted by HMRC utilises a regulated care provider and an unregulated care provider within the same VAT group. The unregulated company contracts directly with the local authority or NHS to provide the services and such supplies are VATable, but such services are actually provided by the regulated company via a contractual arrangement, intra VAT group, between the regulated provider and the unregulated provider. As the VAT group is making VATable supplies to the local authority/NHS, it can recover VAT that it would not be able to do if it were making exempt supplies.   

HMRC’s view 

The newly published brief targets such VAT group arrangements as 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”. As such HMRC deems such VAT groupings as contrary to the principles of VAT law and indicative of tax avoidance.  

Implications  

HMRC have indicated that they will “fully investigate” any such VAT group structures and will reject any new VAT group applications that attempt such arrangements.  

Care providers who have adopted such structures should therefore review their VAT arrangements and seek appropriate advice if they have any concerns.