|HMRC Reference:Notice 701/2 (June 2011)||View Change History|
This notice cancels and replaces Notice 701/2 (February 2007). Details of changes to the previous version can be found in paragraph 1.2.
This notice explains:
You can find details of supplies made by health professionals in Notice 701/57 Health professionals.
This notice replaces the 2007 edition of Notice 701/2 Welfare. It has been restructured and updated to improve readability and reflect the withdrawal of Extra Statutory Concession 3.37 VAT: Exemption for supplies of welfare services by private welfare agencies pending registration. It also includes a section on supplies of staff and provides clarification of the evidence required to demonstrate charitable status.
You should read this notice if you:
Schedule 9, Group 7 VATA 1994 provides that supplies of welfare services and connected goods by charities, state-regulated private welfare institutions or agencies, or public bodies are exempt from VAT. This Group also provides that the supply, otherwise than for profit, of certain goods and services made by a religious community to its resident members are also exempt from VAT.
Exemption from VAT means that although no VAT is charged on the supply being made, the person making the supply is generally not entitled to reclaim VAT on the costs incurred in making the supply. More information on this can be found in Notice 706 Partial exemption.
Schedule 7A, Group 9 VATA provides that supplies of Welfare advice and information by a charity, state-regulated private welfare institution or agency are made at a reduced rate of VAT.
Welfare services are services which are directly connected with
Care, treatment or instruction includes the protection, control or guidance of an individual when this is provided to meet their medical, physical, personal or domestic needs.
Any instruction must relate to the care or treatment of the individual for example showing them how to dress or bath themselves. It does not include the supply of information in the form of advice or help to enable them make an informed decision. For a service to be exempt under this heading the following must be satisfied:
Routine domestic tasks (such as housework; simple odd jobs; shopping and collecting a prescription or pension) that are performed by one of the bodies detailed in section 3 are exempt when all of the following conditions are met:
A person is considered to be unable to carry out a routine domestic task safely when their performance of the task involves a likelihood of physical harm or injury. For example, a person who has a poor sense of balance may be unable to dust high up areas safely if this dusting would involve standing on a chair or ladder.
A person may be unable to carry out a task adequately when they are unable to perform tasks properly or effectively. For example, an elderly or disabled person who has mobility problems may be unable to shop regularly enough to meet their nutritional needs.
The word ‘significant’ is used to exclude the low levels of pain or discomfort experienced by many people in carrying out routine domestic tasks. Assessments of a service recipient’s needs should distinguish between low levels of pain or discomfort, and a significant level of pain or discomfort that restricts ability to carry out routine tasks.
Examples of when tasks cannot be carried out without significant pain or discomfort include a person suffering from a debilitating condition who finds carrying out routine domestic tasks physically exhausting, and so suffers significant discomfort.
Exemption applies to services supplied by one of the providers detailed in section 3 that are directly connected with the care and protection of specific children, rather than children in general. Examples include:
After school clubs and other providers of non-residential care for children are only required to register under the appropriate social legislation if they provide a designated number of hours of care to children under the age of 8. If you are a qualifying institution as detailed in section 3 that:
you may, if you wish, choose to regard the care you provide to over 8 as VAT exempt, in addition to the care you provide to younger children.
Some welfare providers, such as independent fostering agencies, receive fees for services that, although concerned with the overall welfare of one or more child, are not primarily and directly connected with the care or protection of a specific child. In other instances a business or club may provide services which it feels are supplies of welfare when in fact they are not. Examples include fees received for:
These services are not usually exempt unless they are provided as part of an exempt composite supply of care and protection. However, education and training services provided by certain “eligible bodies” are exempt from VAT under separate provisions. You can find out more about the exemption for education and training in Notice 701/30 Education and vocational training.
A supply of spiritual welfare is exempt if it is made by
The provision of spiritual welfare as part of a retreat is exempt when provided by a religious institution. Supplies may include:
Supplies that are not exempt from VAT include:
Supplies of welfare services, and certain goods supplied in connection with those services, are only exempt when made by the following specified providers:
In order to apply the welfare exemption a charity must hold evidence that it is registered with the Charity Commission for England and Wales, or if not registered with them (for example if it is exempt from registration with the Charity Commission or is a Scottish or Northern Ireland charity) then it must have evidence that it has been formally recognised as a charity by HMRC for tax purposes.
To find out how to apply to HMRC for recognition as a charity for tax purposes click here.
No. The provision of welfare services and related goods, supplied consistently below cost by charities to distressed people for the relief of their distress, is not a business activity for VAT purposes. You can find further details on this in Notice 701/1 Charities.
There are VAT reliefs available on certain goods and services purchased by charities. Some (but certainly not all) of these reliefs are available only on purchases for use in the course of their non-business activities. For example, subject to conditions, a charity may qualify for the reduced rate of VAT on fuel and power for premises used for non-business purposes or zero-rating on the construction of a new building to be used solely for non-business activities.
The following are public bodies:
State-regulated private welfare institutions and agencies are establishments or other providers that are registered with, and/or regulated by, one of the following regulatory bodies:
State-regulated private welfare agencies include domiciliary care agencies, independent fostering agencies, voluntary adoption agencies and nurses’ agencies.
A welfare provider becomes state-regulated when the relevant regulatory body approves its application to register. The provider is not state-regulated whilst its application is under consideration and so it may not exempt its supplies of welfare services during that period.
Goods you provided as part of, or in connection with your exempt supply of welfare services are usually also exempt. Examples include:
However, any goods that can be separated from an exempt welfare service, or are not provided in connection with such a service, are not exempt.
No. Exemption applies only to the welfare services detailed in paragraph 2.
For state-regulated private welfare institutions, such as residential care homes, only those activities that are regulated by the appropriate regulatory body (see paragraph 3.3.1) are exempt. However, this will include all care and treatment services provided within a regulated residential care home.
You are required to register for VAT when the value of your taxable supplies exceeds the VAT registration threshold. If you provide welfare services (see paragraph 3) it is likely that the majority of your supplies will be exempt, and you may not be required to register for VAT.
A welfare provider which also makes taxable supplies, but whose taxable activity is below the registration threshold, can apply to register for VAT on a voluntary basis.
You can find more advice on registration from Notice 700/1 Should I be registered for VAT.
In general, a welfare provider will incur VAT on its purchases, such as the supplies of staff, in the same way as any other organisation. However, if you are a charity you may not have to pay VAT, or may be entitled to a reduced rate VAT, on certain goods and services that you purchase.
Read about the VAT relief for charities in Notice 701/1 Charities.
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.
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 exempt from VAT. However, supplies to recipients of direct payments that are not made by a charity or state-regulated private welfare institution or agency are subject to VAT at the standard rate.
If you are an agent, your commission, fee or any other charge that you made for arranging and administering the supply is standard-rated.
Welfare advice or information is advice or information that directly relates to the:
(a) Advice or information that directly relates to the physical or mental welfare of elderly, sick, distressed, or disabled people includes:
This list is not exhaustive.
(b) Advice or information that directly relates to the care and protection of children and young people includes:
Only supplies of welfare advice or information made for a charge by the following bodies qualify for the reduced rate of VAT
Supplies of welfare advice or information made by a trading subsidiary of a charitable body are not covered by the reduced rate.
It can be given in any form. Examples include:
This list is not exhaustive.
If you supply welfare advice or information in the form of a book, leaflet, pamphlet or similar item then your supply will be zero-rated if it meets the conditions set out in Notice 701/10 Zero-rating of books etc.
The reduced rate applies to supplies of goods made wholly or almost wholly for the purpose of giving welfare advice or information (i.e. at least 90% of the purpose of any goods used must be for conveying welfare advice or information). Examples include a video advising the elderly on safety in the home, or a DVD featuring advice for children on dealing with bullying. The inclusion on such goods of incidental information, for example, an appeal for donations or information on the charity’s objects, will not affect the reduced rate.
Goods that have an independent use and also carry incidental welfare advice, such as a mug or tee shirt bearing a slogan, are not covered by the reduced rate.
If you're in any doubt about the liability of the supplies you are making you can contact our HMRC helpline on 0845 010 9000 or go to www.hmrc.gov.uk.
If you provide advice free of charge this is a non business activity for VAT purposes. If you are VAT registered you will not be able to recover any of the VAT you incur on costs that relate to your non business activities.
The reduced rate applies only to the charge made by charities and state-regulated private welfare institutions and agencies when they supply welfare advice. Some of the costs they incur in making their supplies of welfare advice will be taxable, for example the costs of recording advice onto an audio cassette. If the charity or state-regulated private welfare institution or agency making the supply of welfare advice is VAT registered it will be able to recover this VAT subject to the normal input tax rules.
The charity or state-regulated private welfare institution may be making a supply of education. Education includes lectures, conferences and distance teaching. Please see Notice 701/30 Education and vocational training for more information.
If you provide welfare advice to prepare attendees for future employment or add to their knowledge in order to improve their performance in their current job you may be providing vocational training. Please see Notice 701/30 Educational and vocational training for more information. However, if you merely supply welfare advice in the form of goods, such as a video or DVD, then the supply will not be training.
Your Charter explains what you can expect from us and what we can expect from you. For more information go to Your Charter.
If you have any comments or suggestions to make about this notice, please write to:
HM Revenue & Customs
VAT Liability Team
100 Parliament Street
Please note this address is not for general enquiries.
For your general enquiries please phone our Helpline 0845 010 9000.
If you are not satisfied with our service, please let the person dealing with your affairs know what is wrong. We will work as quickly as possible to put things right and settle your complaint. If you are still unhappy, ask for your complaint to be referred to the Complaints Manager.
For more information about our complaints procedures go to www.hmrc.gov.uk and under quick links select Complaints.
HM Revenue & Customs is a Data Controller under the Data Protection Act 1998. We hold information for the purposes specified in our notification to the Information Commissioner, including the assessment and collection of tax and duties, the payment of benefits and the prevention and detection of crime, and may use this information for any of them.
We may get information about you from others, or we may give information to them. If we do, it will only be as the law permits to:
We may check information we receive about you with what is already in our records. This can include information provided by you, as well as by others, such as other government departments or agencies and overseas tax and customs authorities. We will not give information to anyone outside HM Revenue & Customs unless the law permits us to do so. For more information go to www.hmrc.gov.uk and look for Data Protection Act within the Search facility.
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