Two providers of adult day care services have lost their cases at the Court of Appeal (CoA) on the tax treatment of their services. Both providers had considered their services exempt of VAT under the group relating to health and welfare. The relevant item within the group exempts the supplies of welfare services where the provider is either a charity or state regulated. One provider was based in Gloucestershire and the other in the London Borough of Havering and both had provided adult-day care services to adults with disabilities in either local authority area. Both providers were private companies, and the question was whether they were state-regulated. If the companies were not state-regulated, then the question whether the tax imposed was against the fiscal neutrality principle under EU law.
In England and Wales providers of adult-day care services are not required to be regulated by the Qualify Care Commission or a similar such regulator, whereas providers of retirement homes are. One of the providers had argued that it worked closely with the local authority, Gloucestershire County Council, and that this meant it was ‘registered’ with the council. The CoA disagreed with this approach, it agreed that working closely with the could mean that the provider was registered in one sense, but the fact that the council had taken note of the company’s contact details and were aware of its services, this did not amount to being state-regulated. There was no requirement for the provider under a relevant law for it to register with a regulator.
The CoA turned to the second question of fiscal neutrality and found that discrimination between organisations that are and are not state-regulated was allowed. Fiscal neutrality is an EU principle that states, in very general terms, where consumers view the end product in a similar manner then the taxation of the supplies should also be similar. The CoA held consumers do indeed see a difference between state-regulated suppliers and those that are not state-regulated. They also confirmed that the EU VAT directive allowed the exemption of services by charities explicitly. The CoA also found that the requirement of adult day-care providers in Scotland and Northern Ireland to be regulated, and therefore their services exempt of VAT, was not in breach of the EU principle of fiscal neutrality as this was due to the devolved administrations decision to regulate these areas and not the UK’s decision to discriminate between state-regulated and those that are not.
The decision can be found at: Leisure, Independence, Friendship And Enablement Services Ltd v Revenue And Customs – Find case law (nationalarchives.gov.uk)
While this could have been a difficult decision for both providers of adult day-care services as no doubt the outstanding VAT would represent significant sums for both of the private companies it is likely that the local authorities in question would have paid the VAT over to the private companies after the event as each authority itself could obtain a refund for the VAT charged as it would relate to the local authorities’ non-business activities.
Please let us know if you have any questions on VAT matters, knowing was is and what is not taxable and the cut-off points for those questions can have a significant impact on your organisation’s financial wellbeing.
