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VAT on care homes and hospitals

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HMRC has revised its policy on the definition of ‘personal care’ for the purposes of deciding when a new building can qualify for zero rating as a care home, or is treated as a standard rated hospital. HMRC now accepts that ‘personal care’ in a care home may also involve a high level of medical treatment, following the decision of the First-tier Tribunal in Pennine Care NHS Trust [2016] UKFTT 222.

Where a care home incorporates a treatment centre, the building, or part of a building, housing this facility will qualify for zero rating where it is used at least 95% by the residents of that home.

An important distinguishing feature of a care home is whether it provides for lengthy periods of residence. HMRC also accepts that the Tribunal decision will apply to other institutions, such as hospices, which allow for longer periods of convalescence or rehabilitation than is usual in a hospital.

Businesses may be able to recover VAT paid on supplies which would have been eligible for zero rating under the revised policy, subject to the four year limit on claims.

See Revenue and Customs Brief 2/2017: VAT on care homes and hospitals (

HMRC has also updated its VAT Construction Manual with new guidance on the meaning of ‘relevant residential purpose’ (see VCONST 15610 and VCONST 15250).

Issue: 1365
Categories: News , VAT