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Written by: David Wilson

David Wilson

Technical Associate Director

Devolution results in differential VAT treatment of welfare services across UK

In this article, we noted above the significant consequences in the operation of income tax legislation across the constituent parts of the United Kingdom. The Upper-tier Tax Tribunal has however pointed out that, despite the uniformity of VAT law across the UK, there is, nevertheless, a differential VAT treatment of day care providers between England and Wales on the one hand and Scotland and Northern Ireland on the other.

This differential is not caused by the VAT legislation, but by the choice of the devolved legislatures in Scotland and Northern Ireland to regulate such services.

In the VAT case concerning The Learning Centre (Romford) Ltd, and L.I.F.E. Services Ltd the Upper-tier Tribunal allowed HMRC’s appeals finding that in both circumstances, there was no breach of the principle of fiscal neutrality in the application of VAT legislation on welfare services across the United Kingdom.

Throughout the UK, it remains the case that all state-regulated private providers of welfare services can provide their services exempt from VAT, and all unregulated providers (except for charities) must apply VAT at the standard rate. That criterion, it has been determined, is a rational and lawful distinction which properly implements European VAT law into UK VAT legislation.

Whether or not a provider is state-regulated is a matter of fact pursuant to a provision of a public general Act, such an Act being defined in the appropriate Notes to the relevant Schedule of VATA 1994.

Social care is, however, a devolved issue and a decision made by an Act of the Scottish Parliament that Scottish providers of day care services must be regulated means that they fall within the VAT exemption. In England (and Wales) however, because providers of day care services are not state-regulated then consequently, their supplies must be subject to VAT.

Even though it could be argued that LIFE Services and The Learning Centre may be providing similar services to those provided by regulated bodies in Scotland (or Norther Ireland), and that they may be providing services to the same standard of care as would be required if they were state-regulated, the fact remained that they were not state-regulated. Therefore, in practical terms, as they are not subject to the same level of state supervision as providers are in Scotland (and Northern Ireland), the regulatory diversion between Scotland and England changes the VAT exemption criteria for such bodies operating in different constituent parts of the UK.

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