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HMRC internal manual

VAT Government and Public Bodies

Other local authority activities: welfare: Supporting People joint statement with the Department of Communities and Local Government

This joint statement with the Department of Communities and Local Government was issued before the Supporting People initiative had been implemented. Since that time, it has become evident that some of the terminology adopted by the programme does not accurately describe the position for VAT purposes. In particular certain payments referred to as grants or subsidies, are properly consideration for supplies. Any doubts about the true nature of a particular payment should be checked using the Supply & Consideration manual (VATSC) (external users can find this guidance at If the position remains unclear the Public Authorities UoE should be consulted (see VATGPB1600).

VAT and services supplied under Supporting People

1. Supporting People has given rise to concerns that VAT may be incurred on certain services. This paper sets out which services will attract VAT and those that are exempt.

Local authorities & non-business activities

2. The provision of support services by local authorities funded through Supporting People will be treated as non-business activities for VAT purposes. The term non-business usually applies to those activities that a local authority carries out on a statutory basis. A charge may or may not be made for such activities and they are outside the scope of VAT.

3. In general, local authorities will be able to reclaim the VAT they incur in supplying Supporting People services, under the provisions of the section 33 VAT refund scheme. Section 33 of the VAT Act 1994 allows local authorities to obtain a refund of irrecoverable VAT they may incur when carrying out their statutory non-business duties. The entry criteria for the scheme is strictly enforced and is limited to those bodies who carry out local authority activities and have the power to draw upon local taxation for their income.

4. If the local authority commissions a third party, such as an RSL, to supply support services under the Supporting People programme, the local authority will only be able to recover the VAT if a taxable supply has been made to them. A taxable supply is a supply on which VAT is chargeable. Zero-rated supplies are counted as taxable supplies as they are supplies where the rate of VAT has been set at 0%.

5. Certain types of supplies are exempt from VAT. The supplier cannot charge VAT on supplies of exempt services they make to the local authorities. The supplier is unable to reclaim any VAT incurred in making these exempt supplies. This means the value of the exempt supplies and the VAT incurred by the supplier in the course of making the supplies must be included in the overall charge the supplier makes to the local authority. Examples of exempt services can be found in section 11.

6. Welfare Services Grants will be paid to local authorities exclusive of VAT. Where the local authority receives a taxable supply in order to make its supplies it will generally be possible for the VAT incurred to be claimed back. It will be for the local authority to claim this back through section 33 of the VAT Refund Scheme. ODPM will not be covering the cost of any VAT incurred through the Supporting People programme.

Supplies that consist of more than one element

7. Where a supply consists of more than one element (for example where a single organisation provides both support and housing management services), regardless of the fact that there might be separate contracts, this may form a single supply for VAT purposes.

8. There is a single supply for VAT purposes where one or more elements of the service are regarded as constituting the principal service, while one or more elements, by contrast, are regarded as ancillary services. A service is ancillary if it does not constitute for customers an aim in itself, but a means of enjoying better the principal service. In such cases, the VAT liability of the whole supply follows that of the predominant element. Where the predominant element of a single supply is VAT exempt support services, the whole supply may be VAT exempt.

9. The charging of a single price is not decisive, neither is whether the funding for the services provided comes from more than one source. If the circumstances of the transaction indicate that customers intend to purchase two distinct services, it is unlikely that there is a single supply.

10. More information can be found in Business Briefs 02/01 and 03/02 obtainable on the HMRC website at or from the Customs National Advice Service on 0845 010 9000.

VAT Exempt Services

11. Unless supplied as an ancillary element of a single taxable supply, the following services are exempt from VAT:

(a) Residential accommodation in premises other than a hotel, inn, boarding house or similar establishment.

(b) Support that consists of welfare services provided by a:

  • Charity (this includes organisations registered with the Charity Commission in England and Wales; registered societies within the meaning of the Industrial and Provident Societies Act 1965; any registered society or branch within the meaning of the Friendly Societies Act 1974; and organisations recognised as charitable by the Inland Revenue. NOTE - Companies limited by guarantee that have charitable objectives are not necessarily charities
  • public body (such as a local authority), or
  • state regulated private welfare institution (an establishment that provides care, which is registered with, and regulated by, the National Care Standards Commission, or a similar regulatory body). NOTE - RSLs are not state regulated welfare institutions.

Welfare Services

12. For the purposes of VAT exemption, welfare services are those directly connected with:

  • care, treatment or instruction that are designed to promote the physical or mental welfare of elderly, sick, distressed or disabled persons; or
  • the care or protection of children and young persons.

13. Whether an activity is a VAT exempt welfare service depends not only upon the status of the provider, but also upon the purpose for which the service is provided and the needs of the beneficiary. It is not possible to provide a definitive list of services that will be VAT exempt in all circumstances. However, Customs regard the following as potentially eligible for VAT exemption as welfare services when provided by a charity, public body or state regulated private welfare institution to elderly, sick, distressed, disabled people, or to children or young people:

  • training on welfare related matters;
  • support or instruction designed to develop or sustain a person’s capacity to live independently in the community;
  • protection, control, guidance or companionship required to meet an individual’s personal or domestic needs;
  • general assistance with everyday tasks - including home help services and assistance with routine administration. See Customs Information Sheet 6/99, available on the Customs web site, for further information;
  • housing resettlement support provided after an individual leaves a refuge or institutional care;
  • assistance with management of behavioural problems.

Services subject to VAT

14. Unless supplied as an ancillary element of a single exempt supply, the following services are subject to VAT at the standard rate:

(a) Residential accommodation in a hotel, inn, boarding house or similar establishment.

(b) Housing management services.

(c) Support services that are not welfare services as defined above.

(d) Any support services provided by an organisation that is not a charity, a public body or a state regulated private welfare institution as detailed above. This includes any service provided by a commercial organisation to an individual at a location other than on the premises of an institution registered with the National Care Standards Commission, or a similar regulatory body.

15. Customs intend to introduce a VAT concession for certain commercially provided Homecare services alongside the DTI’s regulations on the private recruitment industry. The detail of this concession has yet to emerge.