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VAT liability of daycare services

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HMRC has published ‘Revenue and Customs Brief 9/2021 confirming that the VAT exemption for welfare services does not apply to private welfare institutions or agencies which supply daycare services in England and Wales and are not state regulated.

The Brief sets out HMRC’s position following the judgment of the Court of Appeal in the joint appeals of LIFE Services Ltd and The Learning Centre (Romford) Ltd [2020] STC 898 (and the Supreme Court’s decision to refuse leave to appeal).

The provision of welfare services by private bodies that are not charities is only exempt from VAT if the body concerned is a state-regulated, private-welfare institution or agency (VATA 1994 Sch 9 Group 7 item 9). Note (8) to Group 7 defines ‘state-regulated’, as ‘approved, licensed, registered or exempted from registration by any Minister or other authority pursuant to a provision of a public general Act’.

The Court of Appeal held that the appellant companies did not fall within that definition and did not meet the conditions for exemption.

The Court also found that VATA 1994 Sch 9 Group 7 item 9 did not breach the principle of fiscal neutrality in its distinction for VAT purposes between state-regulated and non-state-regulated, non-charitable, private-welfare institutions.

The Brief advises providers of daycare services in England and Wales which are not charities and which have not accounted for VAT on supplies of these services to do so with immediate effect.

Providers in Scotland and Northern Ireland are not affected by the judgment because, under devolved provisions, they are required to be state-regulated.

Issue: 1536
Categories: News