HMRC close the VAT avoidance scheme for residential care homes

HMRC has recently closed a VAT avoidance scheme that was promoted by some accountancy firms. This scheme involved residential care homes, which are regulated by the Care Quality Commission (CQC) and fall within the VAT welfare exemption. Normally, care providers cannot recover VAT on their costs because they make onward exempt sales. However, the avoidance scheme attempted to remove the exemption for care provision made to Local Authorities and charge standard rate VAT by forming a VAT group with an unregulated and a regulated entity in a supply chain. This allowed the care provider to recover VAT on its costs, and the Local Authority could recover the care provider's VAT as input tax under a special VAT recovery scheme for public bodies.

The closure of the VAT avoidance scheme by HMRC means that care providers will need to reassess their cost structures. This change underscores the importance of compliance with VAT regulations and the need for careful financial planning in the provision of essential welfare services.

At James Cowper Kreston, we have extensive expertise in VAT regulations. If you wish to discuss this in further detail, please get in touch with one of our Indirect Tax Services team members.