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HMRC internal manual

VAT Welfare

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.

Age Concern Leicester & Rutland [2009] 20762

Age Concern was contracted by a local authority to provide care services to the elderly. The Appellant argued that the services were supplied to the local authority and couldn’t be regarded as welfare services if they were not made to the recipient of the supply. They also argued that the services they supplied were of a general nature and went wider than the exemption intended.

The tribunal found that the services were provided to the elderly as it was not uncommon for services to be provided to one party pursuant to a contract with another. It also dismissed the general nature argument as the services when considered together were in essence welfare services.

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 again exempt from VAT.

If you are an agent, your commission, fee or any other charge that you made for arranging and administering the supply is standard-rated.

The wording of terms and conditions of agreements

Some employment businesses state in their contract terms that their staff are still working under their control and direction rather than the third party to which their staff are being supplied. If that is the case you are no longer acting as an ‘employment business’ within the definition of the Employment Act 1976. The VAT liability of a supply is not determined conclusively by the terms of any contract or other documentation alone. If the wording of a contract does not reflect any changes in the way that the business actually operates in practice, the VAT liability of a taxable supply of staff will not change.