Holding hands

Tribunal decision demonstrates that VAT efficient arrangements for welfare services can continue

Potential VAT savings can be significant

Rob Warne, Partner Head of VAT, and Kieran Smith, Director, VAT
Holding hands

The decisions in the cases of Learning Centre Romford Ltd and L.I.F.E Services Limited have been released by the Upper Tier Tribunal.

The court has found in favour of HMRC. Therefore, VAT at the standard rate should continue to be applied by providers that are not Public Bodies, Charities or subject to state regulation.

Details of the case

The case concerns the VAT treatment of supplies of welfare (day care services) where there is a disparity in the VAT treatment created as a result of a difference in the regulation of services between England, Scotland and Northern Ireland. Day care services in Scotland and Northern Ireland are state regulated but in England they are not.

The First Tier Tribunal had ruled that the provisions in Group 7, Schedule 9 of the UK VAT Act 1994 had breached the principle of ‘fiscal neutrality’ whereby the same transactions should be afforded the same VAT treatment. HMRC appealed this decision and both cases were heard together.

Why is this Important?

The UK VAT legislation is clear that VAT exemption can only be applied by Public Bodies, Charities and providers that are subject to state regulation; providers not falling within these headings must apply VAT at the standard rate.

Many providers have been using unregulated subsidiary companies to provide 'VATable' services in order to make VAT savings on costs and this is accepted by HMRC. However, if the UK legislation was changed then this benefit may have been removed prospectively by a change to the UK VAT legislation.


The Upper Tier found that there is a ‘relevant difference’ between the services of a regulated, and an unregulated, entity and so the difference in the VAT treatments did not result in a breach of fiscal neutrality. Consequently, the UK legislation is within the parameters of the EC legislation and those taxpayers using subsidiary companies to improve their VAT recovery position can continue to operate in this manner.

We have worked with a number of such organisations and it is possible to realise significant VAT savings.

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How we can help

For further information on how you could make your VAT recovery position more efficient please contact Rob Warne or Kieran Smith.



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Register to attend our free webinar where we will discuss the benefits of using subsidiary companies to provide welfare services. We will contact you as soon as the date for the webinar has been confirmed.

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Robert Warne
Rob Warne
Partner, Head of VAT and Customs Duty services