HMRC v LIFE (2017)

Keywords: Care providers, VAT exemption, Care Act delegation

This appeal concerned the VAT status of the services provided by LIFE Services Limited, a profit-making provider of private day care services for adults with a range of disabilities.

The First Tier Tribunal had ruled that LIFE’s services were welfare services which were exempt for VAT purposes as falling within the terms of Item 9 of Group 7 of Schedule 9 (“Item 9”) to the Value Added Tax Act 1994.

“Devoted to social well-being”

Item 9 specifies as exempt for VAT purposes, the supply of welfare services (and related goods) by a charity, a public body or “a state-regulated private welfare institution or agency”. This exemption gives effect to EU law (the Principal VAT directive Article 132 (1) (g)) which requires Member States to exempt “the supply of services and goods closely linked to welfare” including those supplied by bodies recognised by the Member States as “being devoted to social well-being”.

The First Tier Tribunal had found Item 9 incompatible with EU law on the grounds that it exempted services supplied by Charities but not those supplies by LIFE.

The UT reversed the decision of the FTT, holding that the FTT erred in concluding that Item 9 was incompatible with the Principal VAT directive on the footing that it entitled bodies to the exemption without regard to whether they were devoted to social well-being.  On the contrary, the correct reading of item 9 was either: (a) that all charities are (by virtue of the requirements for charity registration) devoted to social wellbeing; or, more likely, (b) it exempted only charities which supply social welfare services and which have an object focussed on social well-being. In either event, item 9 does not extend exemption to all charities regardless of their devotion to social well-being and is, therefore, not incompatible with the Principal VAT directive.

Fiscal neutrality

A key part of the FTT’s reasoning had been the EU law principle of fiscal neutrality, which requires that tax frameworks do not treat differently for tax purposes goods and services which are similar, and therefore, in competition with each other. However, Member States have a discretion in deciding which non-public law authorities should benefit from the exemption.

“There is no way in which LIFE can equate itself with entities which are subject to the sort of regulation regime which is applied to regulated bodies. Those bodies are obliged to conform to certain standards. For LIFE that is optional, even if it chooses for the time being to do so.” [para. 55]

Care Act delegation

The UT also considered whether delegation of a Local Authority’s Care Act duties to another entity rendered that entity “state-regulated”. Note (8) to Item 9 states that an institution or agency is to be regarded as “state-regulated” if it is “approved, licensed, registered or exempted from registration…”. LIFE’s services were not required to be registered with CQC due to being day care services. However, clients were council funded, either directly or via Direct Payments, and the council were involved in setting the terms of care and inspected the service regularly (under commissioning arrangements).

LIFE sought to argue that their services were, therefore, “regulated” under the Care Act. The upper tribunal rejected that argument, holding that the delegation by a local authority (under s.79 Care Act) of its duty to meet needs (under s.18 Care Act) did not make the delegate “state-regulated”:

“In our view, Note (8) contemplates that there would need to be more than a simple delegation of functions before an entity could be said to be “approved” and therefore state-regulated.

In our view, the provisions of the Care Act 2014 to which we were referred do no more than impose duties on the relevant local authorities to provide the relevant services and give it the power to delegate its functions to another person. The provisions say nothing about how those services are to be regulated.” [Paras. 71 & 72]

In summary, the UT concluded that a body that was neither a charity nor a regulated body could not avail itself of the VAT exemption for the supply of welfare services.


Without seeking to differ from the outcome of this case, we would note in passing that it is a bizarre application of s79 in this case: the providers would have just been contractors, not delegates of the local authority, we would suggest. If a body is a delegate, it is likely to be discharging local authority thinking functions such as eligibility decision making, assessment and care planning, not just provision of services within a person’s care plan.

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