K Ltd and M Ltd traded together through a partnership known as Kingscrest Residential Care Homes. The partnership operated two residential care homes for profit; one being a residential care home for adults with learning disabilities registered with Croydon and providing a variety of services including twenty-four-hour care and board. None of the staff was trained in medical or nursing care. Outside doctors visited to prescribe medication. The other was a residential care home providing care and accommodation for children but children with special needs or disabilities were not admitted; the home was registered under the Children Act with Hackney. The home did not provide medical services other than first aid. Staff only dealt with minor injuries and illnesses in a manner equivalent to a parent.
The partnership applied to register for VAT with the Commissioners. The application was rejected as Commissioners considered the supplies made by the partnership to be exempt supplies under Item 4 of group 7 of sched 9 of the Value Added Tax Act 1994. The taxpayers’ appeal was heard by the VAT and Duties Tribunal who allowed the appeal against the decision of the Commissioners. The Commissioners appealed.
(1) Whether the supplies made by the partnership were exempt under the provisions of item 4 or 9 of group 7 of sched 9 of the Value Added Tax Act 1994.
(2) Whether the provisions of items 4 and 9 of group 7 of sched 9 of the Value Added Tax Act 1994 correctly implemented in UK domestic law the provisions of Art 13 of Council Directive 77/388 (‘the Sixth Directive’).
HELD (dismissing the Commissioner’s appeal)
(1) The homes did not provide services which fell within the item 4 exemption as the services were not the ‘provision of care or medical or surgical treatment and, in connection with it, the supply of any goods, in any hospital or other institution approved, licensed, registered or exempted from registration medical or surgical treatment…’. The services covered by item 9 were wider – it provides exemption for ‘the supply, otherwise than for profit, by a charity or public body of welfare services and of goods supplied in connection therewith’. The services provided at the homes were ‘care designed to promote the physical and mental welfare of elderly, sick, distressed or disabled persons’. The exemption would therefore have been available under item 9, if the services had not been supplied at a profit. However, the services provided by the homes were supplied at a profit and the supplies were not therefore exempt under item 9 – so the partnership was registrable for VAT.
(2) The interpretation found by the tribunal was consistent with Art 13 of the Sixth Directive. There was an overlap between the various activities listed in the paragraphs of Art 13A(1) but each should be examined in its own context. The purpose of the provisions was to exempt supplies of services which had clearly beneficial objectives in the public interest. However, there was nothing to suggest that the ‘duly recognised establishment of a similar nature’ to hospitals or centres or medical treatment or diagnosis should embrace establishments like these homes which did not provide, or have activities closely related to the provision of, hospital or medical care. The homes were not centres for medical treatment, even in a broad sense.