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VAT - Welfare and care agencies

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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.

January 2006




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