HMRC have issued, on the 24 April, a Revenue & Customs Brief 2 (2025) which outlines the action they will immediately take to block what they regard as a form of VAT avoidance being used in the residential care sector.
The scheme had operated through the use of VAT Grouping and the inclusion on a non-state regulated provider within the VAT Group alongside the original state regulated provider. It created a VAT benefit in that it enables welfare services from the unregulated party, supplied to local authorities and NHS bodies to become taxable thus unlocking VAT recovery within the provider. The VAT charged would be recoverable by the public body.
Residential care services would remain supplied by regulated entity to private customers and therefore retain their VAT Exempt status.
The challenge will impact on charitable care providers who have also engaged in the structure.
Immediate action is being taken by HMRC to review all existing VAT group structures that utilise this arrangement and whilst cases will be determined on an individual basis, it is clear that HMRC will be launching a robust challenge. Equally any new VAT group applications will face the risk of refusal by HMRC.
The Xeinadin Indirect Tax team can assist in supporting care providers faced with unravelling their individual positions as required. Contact us today to find out more.
