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This publication is available at https://www.gov.uk/government/publications/vat-notice-7012-welfare/vat-notice-7012-welfare
This notice cancels and replaces Notice 701/2 (February 2007). Details of changes to the previous version can be found in paragraph 1.2.
1.1 What is this notice about?
This notice explains:
- what welfare services and goods relating to supplies of welfare are exempt
- who can exempt the supply of welfare services and goods, relating to supplies of welfare services
You can find details of supplies made by health institutions, such as hospitals and hospices, in Notice 701/31 Health institutions.
You can find details of supplies made by health professionals in Notice 701/57 Health professionals.
1.2 What’s changed?
This notice replaces the 2007 edition of Notice 701/2 Welfare. It has been restructured and updated to improve readability and reflect the withdrawal of Extra Statutory Concession 3.37 VAT: Exemption for supplies of welfare services by private welfare agencies pending registration. It also includes a section on supplies of staff and provides clarification of the evidence required to demonstrate charitable status.
1.3 Who should read this notice?
You should read this notice if you:
- supply or purchase care, treatment, welfare advice or instruction services
- supply or purchase services relating to the provision of spiritual welfare
- are the recipient of any of the above services
1.4 What law is covered in this notice?
Schedule 9, Group 7 VATA 1994 provides that supplies of welfare services and connected goods by charities, state regulated private welfare institutions or agencies, or public bodies are exempt from VAT. This Group also provides that the supply, otherwise than for profit, of certain goods and services made by a religious community to its resident members are also exempt from VAT.
Exemption from VAT means that although no VAT is charged on the supply being made, the person making the supply is generally not entitled to reclaim VAT on the costs incurred in making the supply. More information on this can be found in Notice 706 Partial exemption.
Schedule 7A, Group 9 VATA provides that supplies of Welfare advice and information by a charity, state regulated private welfare institution or agency are made at a reduced rate of VAT.
2. What are Welfare Services?
Welfare services are services which are directly connected with
- the provision of care, treatment or instruction designed to promote the physical or mental welfare of elderly, sick, distressed or disabled persons (see paragraph 2.1)
- the care or protection of children and young persons (see paragraph 2.2)
- the provision of spiritual welfare by a religious institution as part of a course of instruction or a retreat. (It must not be designed primarily to provide recreation or a holiday (see paragraph 2.3)
2.1 Services that are directly connected with the provision of care, treatment or instruction
2.1.1 What is care, treatment or instruction?
Care, treatment or instruction includes the protection, control or guidance of an individual when this is provided to meet their medical, physical, personal or domestic needs.
Any instruction must relate to the care or treatment of the individual for example showing them how to dress or bath themselves. It does not include the supply of information in the form of advice or help to enable them make an informed decision.
For a service to be exempt under this heading the following must be satisfied:
- the recipient must be an elderly, sick, distressed or disabled person
- the care, treatment or instruction must be part of an specific individual care plan and the service must relate to it
- an assessment of the recipient’s health condition and medical needs has been carried out by an appropriately trained person
- personal or nursing care (including assistance with bathing, dressing, toileting and other personal hygiene)
- general assistance and support with everyday tasks such as form filling, letter reading/writing, bill paying
- certain routine domestic tasks (see paragraph 2.1.2)
- looking after or supervising vulnerable people
- support or instruction designed to develop or sustain a person’s capacity to live independently in the community
- protection, control, guidance or companionship that is required to meet an individual’s personal or domestic needs
- residential care, including accommodation, board and other services provided to residents as part of a care package
2.1.2 When are routine domestic tasks exempt from VAT?
Routine domestic tasks (such as housework; simple odd jobs; shopping and collecting a prescription or pension) that are performed by one of the bodies detailed in section 3
- the recipient of the service is an elderly, sick, distressed or disabled person
- an assessment of the recipient’s health condition, medical needs and ability to perform each task has been carried out by an appropriately trained person - such as a medical or health professional or any person with relevant training or experience in social work or social care
- this assessment has shown that the recipient is unable to carry out the tasks safely or adequately (see paragraph 2.1.3), and that this inability presents a risk to their health or welfare
- a record of each assessment is maintained by the supplier of the service
- the service provided is a routine domestic task that the majority of the population would expect to carry out for themselves and which is required to keep a household going. This excludes specialist services such as non essential gardening, decorating and other house maintenance including re-roofing, plumbing and electrical services
2.1.3 When is a person unable to carry out tasks safely or adequately?
A person is considered to be unable to carry out a routine domestic task safely when their performance of the task involves a likelihood of physical harm or injury. For example, a person who has a poor sense of balance may be unable to dust high up areas safely if this dusting would involve standing on a chair or ladder.
A person may be unable to carry out a task adequately when they are unable to perform tasks properly or effectively. For example, an elderly or disabled person who has mobility problems may be unable to shop regularly enough to meet their nutritional needs.
2.1.4 What is meant by ‘significant’ pain or discomfort?
The word ‘significant’ is used to exclude the low levels of pain or discomfort experienced by many people in carrying out routine domestic tasks. Assessments of a service recipient’s needs should distinguish between low levels of pain or discomfort, and a significant level of pain or discomfort that restricts ability to carry out routine tasks.
Examples of when tasks cannot be carried out without significant pain or discomfort include a person suffering from a debilitating condition who finds carrying out routine domestic tasks physically exhausting, and so suffers significant discomfort.
2.2 Care or protection of children and young persons
2.2.1 What services relating to care and protection of children are exempt?
Exemption applies to services supplied by one of the providers detailed in section 3
- care provided in a children’s home
- day care services such as those provided by a nursery, playgroup or after school club (but not activity based clubs such as dance classes etc)
- the placement of a child with foster carers by a fostering agency
- the assessment of families to be included on the at risk register by providers mentioned in section 3
- the care, support and protection of looked after children
- the training and assessment of prospective adopters by an adoption agency
2.2.2 What are the special rules that apply to non residential care for children?
After school clubs and other providers of non residential care for children are only required to register under the appropriate social legislation if they provide a designated number of hours of care to children under the age of 8. If you are a qualifying institution as detailed in section 3
- provides care on a commercial basis to children who are younger than 8 years old, as well as to older children
- operates identical hours of opening for all age groups
- provides activities for over 8s that are comparable with those provided for younger children
you may, if you wish, choose to regard the care you provide to over 8 as VAT exempt, in addition to the care you provide to younger children.
2.2.3 What services related to the care or protection of children are not exempt supplies of welfare?
Some welfare providers, such as independent fostering agencies, receive fees for services that, although concerned with the overall welfare of one or more child, are not primarily and directly connected with the care or protection of a specific child. In other instances a business or club may provide services which it feels are supplies of welfare when in fact they are not. Examples include fees received for:
- training of carers, or potential carers, where this is not linked to the needs of a specific child
- assessment of a potential foster carer’s suitability to look after children, where this is not linked to the needs of a specific child
- play centres and activity based clubs that provide services such as football and dancing lessons, indoor soft play areas and children’s entertainment
- consultancy or research services
- education of children
These services are not usually exempt unless they are provided as part of an exempt composite supply of care and protection. However, education and training services provided by certain ‘eligible bodies’ are exempt from VAT under separate provisions. You can find out more about the exemption for education and training in Notice 701/30 Education and vocational training.
2.3 Spiritual welfare
2.3.1 Which supplies of spiritual welfare are exempt from VAT?
A supply of spiritual welfare is exempt if it is made by
- a charitable religious institution and forms part of a course of instruction or retreat that is not designed primarily to provide recreation or a holiday and is predominately concerned with the spiritual growth and awareness of the recipient
- a religious community (for example a nunnery or monastery) and consists of goods and services incidental to the provision of spiritual welfare, is made otherwise than for profit and is made to a member of that community in return for a subscription or any other payment made as a condition of membership
2.3.2 Spiritual welfare and retreats
The provision of spiritual welfare as part of a retreat is exempt when provided by a religious institution. Supplies may include:
- spiritual counselling of an individual
- guided exploration of spiritual needs and development
- discussion, meditation, prayer or worship sessions
Supplies that are not exempt from VAT include:
- any supply made by a body other than a religious institution or community
- any supply that is not made as part of an organised retreat or course of instruction provided by a religious institution
- conferences or retreats when the predominant purpose is not spiritual welfare
- educational courses in theology, or similar subjects, where the predominant purpose is to expand knowledge of spiritual matters rather than to provide spiritual welfare services
- meetings to discuss theology or aspects of Church doctrine
3. Which bodies provide exempt welfare services?
Supplies of welfare services, and certain goods supplied in connection with those services, are only exempt when made by the following specified providers:
- charities - see paragraph 3.1
- public bodies - see paragraph 3.2
- state regulated private welfare institutions or agencies - see paragraph 3.3
3.1 Evidence of charitable status
In order to apply the welfare exemption a charity must hold evidence that it is registered with the Charity Commission for England and Wales, or if not registered with them (for example if it is exempt from registration with the Charity Commission or is a Scottish or Northern Ireland charity) then it must have evidence that it has been formally recognised as a charity by HM Revenue and Customs (HMRC) for tax purposes.
3.1.1 Are welfare services provided by charities always business?
No. The provision of welfare services and related goods, supplied consistently below cost by charities to distressed people for the relief of their distress, is not a business activity for VAT purposes. You can find further details on this in Notice 701/1 Charities.
3.1.2 Why is it important to a charity whether an activity is business?
There are VAT reliefs available on certain goods and services purchased by charities. Some (but certainly not all) of these reliefs are available only on purchases for use in the course of their non business activities. For example, subject to conditions, a charity may qualify for the reduced rate of VAT on fuel and power for premises used for non business purposes or zero rating on the construction of a new building to be used solely for non business activities.
Read more about the VAT reliefs available for charities in Notice 701/1 Charities
3.2 What are public bodies?
The following are public bodies:
- government departments
- local authorities
- bodies that perform functions similar to those carried out by government departments or local authorities, and act under any enactment or instrument for public purposes rather than for their own profit
You can find out more about who are public bodies in Notice 749 Local Authorities and similar bodies.
3.3 What are state regulated private welfare institutions and agencies?
State regulated private welfare institutions and agencies are establishments or other providers that are registered with, and/or regulated by, one of the following regulatory bodies:
- Care Quality Commission
- Scottish Commission for the Regulation of Care (The Care Commission)
- Care and Social Services Inspectorate Wales
- Northern Ireland Regulation and Quality Improvement Authority
- Office for Standards in Education (OFSTED)
- any other similar regulatory body
State regulated private welfare agencies include domiciliary care agencies, independent fostering agencies, voluntary adoption agencies and nurses’ agencies.
3.3.2 When does a business become state regulated?
A welfare provider becomes state regulated when the relevant regulatory body approves its application to register. The provider is not state regulated whilst its application is under consideration and so it may not exempt its supplies of welfare services during that period.
3.4 Goods provided in connection with welfare services
Goods you provided as part of, or in connection with your exempt supply of welfare services are usually also exempt. Examples include:
- meals and refreshments you provide to the beneficiaries in the course of your provision of care or spiritual welfare services for which no additional charge is made
- bandages, plasters or ointments you supply in the course of a supply of care and treatment in the recipient’s home
- items provided to children by playgroups or nurseries, such as picture books, crayons and toys, when these are provided by the playgroup in connection with the care
However, any goods that can be separated from an exempt welfare service, or are not provided in connection with such a service, are not exempt.
3.5 Are all services supplied by welfare providers exempt from VAT?
No. Exemption applies only to the welfare services detailed in paragraph 2.
For state regulated private welfare institutions, such as residential care homes, only those activities that are regulated by the appropriate regulatory body (see paragraph 3.3.1) are exempt. However, this will include all care and treatment services provided within a regulated residential care home.
4. Welfare providers and VAT registration
You are required to register for VAT when the value of your taxable supplies exceeds the VAT registration threshold. If you provide welfare services (see paragraph 3) it is likely that the majority of your supplies will be exempt, and you may not be required to register for VAT.
A welfare provider which also makes taxable supplies, but whose taxable activity is below the registration threshold, can apply to register for VAT on a voluntary basis.
You can find more advice on registration from Notice 700/1 Should I be registered for VAT.
4.1 VAT and supplies received by welfare providers
In general, a welfare provider will incur VAT on its purchases, such as the supplies of staff, in the same way as any other organisation. However, if you are a charity you may not have to pay VAT, or may be entitled to a reduced rate VAT, on certain goods and services that you purchase.
Read about the VAT relief for charities in Notice 701/1 Charities.
5. Supplies of staff
Employment businesses in the welfare sector make a taxable supply of staff to third parties, such as local authorities, if the third party is legally responsible for the onward supply of providing care to the final recipient.
However, when state regulated welfare providers provide welfare services to the final consumer, these services remain exempt even if they are contracted and paid for by a local authority or other third party. For example, a local authority may contract out the provision of domiciliary care services for the elderly or disabled to a state regulated domiciliary care agency. Although the local authority rather than the final consumer may pay the domiciliary care agency charities for the care services, for VAT purposes the care agency has still made an exempt supply of welfare services rather than staff to the local authority. This is because the care agency’s staff will still be working directly to the agency itself throughout the provision of the services rather than to the local authority.
Exemption would also apply to cases where a local authority or other body subcontracts the provision of adult placement schemes. Under these schemes a ‘worker’ provides personal care and/or support services to adults living with them or living in their own homes. Currently scheme providers need to be registered with the Care Quality Commission.
Sometimes local authorities make payments directly to people who have been assessed as needing help from social services, and who would like to arrange and pay for their own care and support services instead of receiving them directly from the local council. These arrangements are called direct payment schemes, and any welfare services provided to the recipient by a charity or state regulated private institution or agency are exempt from VAT. However, supplies to recipients of direct payments that are not made by a charity or state regulated private welfare institution or agency are subject to VAT at the standard rate.
5.1.1 Agency or arrangement fees
If you are an agent, your commission, fee or any other charge that you made for arranging and administering the supply is standard rated.
5.1.2 How do I decide whether I am an agent or a principal?
This is determined by reference to your contractual and other arrangements. Notice 700 The VAT Guide contains further details that may help you decide whether you are an agent or principal.
6. Reduced rated supplies of welfare advice or information
6.1 What is welfare advice or information?
Welfare advice or information is advice or information that directly relates to the:
- physical or mental welfare of elderly, sick, distressed or disabled people; or
- the care or protection of children and young people
- does not relate to a particular individual but to the above groups of people. It is often provided through videos, DVDs or other media. The reduced rate of VAT (currently 5%) will apply when welfare advice or information is provided by the bodies described at paragraph 6.2 below
- provision of this advice or information will not fall within the reduced rate if it relates to the specific needs of a particular individual
6.1.1 The following are some examples of welfare advice or information
(a) Advice or information that directly relates to the physical or mental welfare of elderly, sick, distressed, or disabled people includes:
- advice on caring for people with Alzheimer’s disease
- home safety advice for elderly
- dealing with domestic violence
This list is not exhaustive.
(b) Advice or information that directly relates to the care and protection of children and young people includes:
- contraception and sexual health for young people
- advice or caring for children with special needs or disabilities
- stranger awareness for children and young people
- strategies for dealing with bullying
- list is not exhaustive
6.2 Who can apply the reduced rate to supplies of welfare advice?
Only supplies of welfare advice or information made for a charge by the following bodies qualify for the reduced rate of VAT
- charities and
- state regulated private welfare institutions or agencies
Supplies of welfare advice or information made by a trading subsidiary of a charitable body are not covered by the reduced rate.
6.3 What form can the welfare advice or information take?
It can be given in any form. Examples include:
- DVD or video
- audio cassette
- CD Rom or
- in person
This list is not exhaustive.
If you supply welfare advice or information in the form of a book, leaflet, pamphlet or similar item then your supply will be zero rated if it meets the conditions set out in Notice 701/10 Zero rating of books etc.
6.4 Does the reduced rate cover supplies of goods?
The reduced rate applies to supplies of goods made wholly or almost wholly for the purpose of giving welfare advice or information (i.e. at least 90% of the purpose of any goods used must be for conveying welfare advice or information). Examples include a video advising the elderly on safety in the home, or a DVD featuring advice for children on dealing with bullying. The inclusion on such goods of incidental information, for example, an appeal for donations or information on the charity’s objects, will not affect the reduced rate.
Goods that have an independent use and also carry incidental welfare advice, such as a mug or tee shirt bearing a slogan, are not covered by the reduced rate.
If you’re in any doubt about the liability of the supplies you are making you can contact the HMRC VAT Helpline.
6.5 What if the welfare advice or information is supplied free of charge?
If you provide advice free of charge this is a non business activity for VAT purposes. If you are VAT registered you will not be able to recover any of the VAT you incur on costs that relate to your non business activities.
6.6 What about the costs incurred in providing the welfare advice or information?
The reduced rate applies only to the charge made by charities and state regulated private welfare institutions and agencies when they supply welfare advice. Some of the costs they incur in making their supplies of welfare advice will be taxable, for example the costs of recording advice onto an audio cassette. If the charity or state regulated private welfare institution or agency making the supply of welfare advice is VAT registered it will be able to recover this VAT subject to the normal input tax rules.
6.7 What if the welfare advice is provided as part of a course, class or lesson?
The charity or state regulated private welfare institution may be making a supply of education. Education includes lectures, conferences and distance teaching. Please see Notice 701/30 Education and vocational training for more information.
6.8 What if the welfare advice or information is given as part of a vocational training course?
If you provide welfare advice to prepare attendees for future employment or add to their knowledge in order to improve their performance in their current job you may be providing vocational training. Please see Notice 701/30 Educational and vocational training for more information. However, if you merely supply welfare advice in the form of goods, such as a video or DVD, then the supply will not be training.
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