VATGPB8225 - Other local authority activities: childcare and welfare: Children’s services trust

Under part 1 of the Children and Young Persons Act and associated regulations local authorities may delegate children’s social care functions to an independent body. Such bodies are usually referred to as children’s services trusts, although they tend to be not-for-profit companies limited by guarantee, sometimes established as community interest companies. Often the decision to delegate functions is taken when a local authority’s children’s services department has failed to operate to a certain level, and may be accompanied by a direction from the Secretary of State for Education that the local authority should take this action to secure improvement. It is also possible for local authorities to voluntarily transfer their children’s social care responsibilities to children’s services trusts.

The arrangement between the local authority and the children’s services trust is contractual and in return for consideration, usually in the form of funding from the local authority for its children’s social care responsibilities, the trust supplies services to the authority. The issue is whether these services are taxable, or exempt welfare (care or protection of children and young people) and education services. While the answer needs to be determined on a case by case basis, the following general guidelines may be helpful. We stress that the circumstances of individual cases may produce different outcomes.

There will often be a combination of welfare and educational support services. Where the contract between the children’s services trust and the local authority results in a single supply of services for VAT purposes (see VATSC11100) and the educational support services are as large an element, or they are a larger element, than the welfare element, then the contract is to be regarded as a single supply of taxable educational support services. The ratio of one to the other should be assessed using a fair and reasonable formula.

Where this is not the case, or where the whole of the arrangement concerns welfare services, the question then to address is whether such services fall within the exemption for welfare (item 9, Group 7, Schedule 9 VATA Act 1994). Children’s services trusts are required to be registered with Ofsted, but the question is which of their services is also so regulated?

While the services of running children’s homes, foster agencies and adoption agencies (which children’s services trusts do to a greater or lesser extent) are regulated by Ofsted, the activities of assessing need, drawing up early help, children in need, care, and child protection plans, making decisions in relation to these plans, and ensuring they are delivered appropriately are not as such regulated. Where the contract between the children’s services trust and the local authority results in a single supply of services supplied by the former to the latter, and the principal elements of the contract are casework, planning and ensuring that appropriate care is delivered, the running of children’s homes etc is ancillary to this and there is a single taxable supply of services. The children’s services trust is essentially taking on the local authority’s statutory duties in this area.

Local authorities can recover any VAT charged to them on taxable supplies made to them by children’s services trusts. This is under section 33(1) of the VAT Act 1994.