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Exempt welfare services – the TLC case

25th Jul 2017
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An important test case has been decided, benefitting many private providers of welfare services.  The Learning Centre (Romford) Ltd (known as TLC in the decision) provides day care to vulnerable adults. Evidence indicated that it delivered a high level of care to its ‘students.’

The case turned on the legal status of TLC, as it was a privately-owned limited company. HMRC had ruled that it was not an ‘eligible body’ as provided by Item 9 of Sch 9, Group 7. This restricts exemption to supplies made by (1) charities, (2) state-regulated private welfare institutions or agencies, and (3) public bodies. Ultimately the decision turned on whether this restriction correctly transposed the word of the European PVD art 132(1)(g) which refers to ‘bodies governed by public law or other bodies recognised by the Member State concerned as being devoted to social well-being.’

There was some criticism of both parties; HMRC for its ‘inept’ decision letter; the taxpayer for not setting out clearly its arguments.

Para 62 of the decision contained the six arguments raised by the taxpayer, which were reasons why, he stated, UK Law had failed to properly implement the PVD.

Unusually for a VAT case, the decision turned on the issue of ‘devolution.’

Paras 35-37 refer to the different legislative requirements in Scotland and Northern Ireland, as compared to England and Wales. Private care homes in Scotland and Northern Ireland which provide day care for vulnerable adults are subject to ‘Care Inspectorate’ regulations, but otherwise identical institutions in England and Wales are not.

Paras 115-159 explain that the outcome of this creates a discrimination in that a care home located in Scotland or Northern Ireland would make exempt supplies, but otherwise identical institution in England and Wales would make taxable supplies. HMRC agreed that this distinction was correct. This lead to the clear conclusion:

My conclusion is that the UK has unlawfully exercised the discretion conferred on it by Art 132(1)(g) in choosing the regulation of welfare facilities as the criteria by which suppliers devoted to social wellbeing are ‘recognised’ for exemption and that is because the law on regulation is devolved, leading to discrimination in VAT treatment between different suppliers offering identical services but situated in different regions of the UK.

In the case of TLC, its registration for VAT with effect from 1 September 2009 is invalid, and presumably significant output tax is refundable.

The full decision is here: http://financeandtax.decisions.tribunals.gov.uk//Aspx/view.aspx?id=9914

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