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HMRC internal manual

VAT Government and Public Bodies

Other local authority activities: childcare and welfare: background

In 2005 many exempt childcare and welfare services provided by local authorities were reclassified as non-business for VAT purposes because they are governed by the Childcare Act 2006. Previously such treatment only extended to services:

• supplied for no consideration, or

• supplied by the authority in its capacity as a public authority, subject to there being no significant distortions of competition (see VATGPB3300).

In other circumstances they generally gave rise to supplies which were exempt from VAT.

Consequently, since 1 April 2005, what were exempt childcare and welfare services supplied by local authorities have been outside the scope of VAT. Any VAT incurred by a local authority on goods and services purchased to support this activity is recoverable under section 33 of the VAT Act 1994 (see VATGPB4000).

Any childcare and welfare services which are not eligible for exemption, because they are taxable, remain business activities. Examples of the VAT status of childcare and welfare services can be found at VATGPB8200.