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Welfare Services exemption for commercial providers

28th Jul 2016
VAT Consultant
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The First Tier Tribunal has heard a significant case where EU VAT legislation has ‘trumped’ UK legislation to the benefit of the taxpayer, and its clients.

The company LIFE Services Ltd, provides day care services for adults with a broad range of disabilities, primarily learning problems. In most cases, the clients are collected from their home (or other residence), taken to a relevant location, and returned home at the end of the day. No overnight accommodation is provided.

The activities provided to the taxpayer’s clients include cooking, exercise, life skills, personal hygiene, etc. The company is NOT a non-profit.

The company is registered with a local authority (Gloucestershire County Council), which undertakes monitoring and inspections.

Since the company is not a charity, VAT exemption turned on whether it is a ‘state-regulated private welfare institution’ (Sch 9, Group 7, Item 9(b)). Although the company is monitored by the local authority, the Tribunal did not identify any specific piece of legislation under which the company was required to be registered, or exempted from registration.  This meant its services fell outside the exemption (paras 37 & 38 of the decision).

This led to the ‘fiscal neutrality’ issue. The fine point is that, by allowing exemption for charities, but not for commercial companies, the UK has failed to apply the EU legislation properly. Where the services provided by a charity would be exempt, but apparently identical services provided by a commercial enterprise are excluded from exemption, the principle of fiscal neutrality is breached. This follows the earlier decision in Kingscrest  (

The FTT then fleshed this principle out in some detail, but ultimately held that the wording of Item 9 (not Note 9 as referred to in para 98) breached the principle of fiscal neutrality. Exemption is therefore available to the company.

The case is here:

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By The VAT Doctor
01st Aug 2016 11:47

Good article Les

If this interpretation is true, and especially if HMRC appeal and lose, one observation is that the VAT planning being sold by certain big advisors to standard rate welfare services by deliberately NOT being state regulated may not be effective. The supplies may be exempt from VAT anyway.

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