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VAT exemption for "Spiritual Welfare"

23rd Feb 2021
VAT Consultant vatadvice.org
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‘Spiritual welfare’ falls within the exemption for Health and Welfare (Sch 9, Group 7). Items 9 and 10 provide for supplies within this definition. HMRC guidance at VATWELF4030 is unclear on this dual provision. I have also seen commercial guidance that also misses the distinction.

Item 10 provides for spiritual welfare within a religious community. Do note that a religious ‘institution’ is not same as a ‘community.’ Item 10 extends only to supplies to resident members of that community.

Item 9 is broader and provides for spiritual welfare outside of a religious community. For example, this might include a weekend retreat organised by a Church or other religious group. Even if is registered for VAT in relation to other activities, this activity will be exempt as long as the provider is a charity.  Notice 701/2, para 2.3.2 provides examples under this Item.

We often find that Item 9 covers supplies made by retreat centres operated by Christian and other faith charities. But this is less helpful when the operator makes substantial investment in property, as input tax incurred is not generally recoverable.

Both items 9 and 10 include goods and services closely connected with the welfare. Note 7 to the legislation allows catering and accommodation to be covered by the exemption as long as it is ancillary to the main supply.  This was addressed in the FTT and Upper Tier in The Lilias Graham Trust [2021] UKUT 0036.

HMRC guidance specifically excludes holiday activities from the exemption.  However, the FTT has recently allowed exemption in the case of RSR Sports Ltd where ‘care’ was provided in a sports/activity environment. This was a case that addressed Note 6(b) rather than Note 6(c) but may be of help where HMRC challenge an operator in relation to holiday activities. This decision contrasts with the earlier decision in Sports Academies where apparently similar services were held to be taxable, not exempt.

There may be some overlap between supplies of education and supplies of welfare, for example, a conference concerning spiritual matters. HMRC say this is also unlikely to be treated as welfare, although it may be categorised as education. Do note that the ’eligible body’ condition for supplies of exempt education is narrower than for welfare.

The Lilias Graham Trust Upper Tier decision is here: www.bailii.org/uk/cases/UKUT/TCC/2021/36.html

The RSR Sports Ltd FTT decision is here: www.bailii.org/uk/cases/UKFTT/TC/2019/TC07453.html

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