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HMRC internal manual

VAT Construction

‘Relevant residential purpose’ - interpretation of terms: exceptions to use for a relevant residential purpose: hospital or similar institution as opposed to a care home

A building isn’t used for a relevant residential purpose when it is used as a hospital or similar institution.

There is no definition of ‘hospital or similar institution’ in the legislation.

There have been a number of cases on this subject where Tribunals have been asked to decide whether an institution is a hospital or a care home. 

You have to consider what the building is being used for rather that what it is called. There are two key areas of difference between care homes and hospitals: 

  • Hospitals aim to treat patients in the fastest time possible in order to enable recovery.  As soon as possible, following treatment, they are discharged or moved elsewhere to create space for further patients. Care homes, by contrast, allow for more lengthy periods of residence as the conditions from which individuals are suffering tend to be long term.
  • Hospitals deal with injuries, illnesses and conditions that require medical or clinical intervention and rely on staff with the appropriate qualifications to carry out these functions.  Care homes provide personal care that tend to be for the purpose of enabling a person to live, or learn to live, with such support as is needed.

Following the decision in Pennine Care NHS Trust (‘Pennine’) (TC04998) HMRC has reviewed its policy.  It now accepts that ‘personal care’ may go well beyond a supportive and supervisory role (to assist with living).  The term may include both therapeutic and clinical treatment that can alleviate or improve the condition of the individual.  In future, HMRC will consider whether there is provision for a person to be in residence for a lengthy period when determining whether an institution is a care home or a hospital.

Personal care may incorporate a high level of medical treatment if it is integral to the accommodation that is being provided.  Care homes, as distinct from hospitals, may be set up to offer an extended period of in-house treatment for the purpose of containing a person’s condition or offering treatment that facilitates recovery or rehabilitation.

A care home may contain a treatment centre that occupies a building, or distinct part of a building.  The treatment centre will be subject to zero-rating if it is to be used solely for the residents of the care home. “Solely” is defined as being used for 95% or more.  If it is used more than 5% by persons who are non-residents, the zero rate will not apply to its construction or first grant of a major interest (freehold or long lease over 21 years or 20 years in Scotland).

The decision in Pennine was in the specific context of care provided for persons detained under the Medical Health Act 1983.  HMRC are prepared to accept that the approach in Pennine adopted by the FtT will apply to other institutions which allow for a longer period of convalescence or rehabilitation than would commonly be the case in a hospital.