There has been much discussion over
the provision of welfare and care services. This includes such areas
as nursing homes and foster care.
Whilst the direct provision of such
services is VAT exempt, the supply of staff through an agency can be
argued to be standard rated.
The Government has often stated that
such services should be provided VAT free. However, VAT exemption
greatly increases the costs of such businesses, since input tax
cannot be recovered.
Further, since supplies are
frequently made to Local Authorities or other statutory agencies,
whose VAT status generally allows recovery of VAT, standard rated
services are effectively better value.
There are technical issues over
whether non-charitable organisations should be exempt; and also
whether agencies that do not directly provide welfare or care should
also be exempt. These issues are being heard at the European Court.
How HMRC will apply the decisions is
also a matter of some concern. If you are involved in such
activities, you may find that the VAT liability of what you do will
change (or may already have changed). There will also be the
knock-on impact on input tax recovery, especially in respect of
major construction projects.