HMRC challenge challenge to VAT welfare structure planning
On 24 April 2025, HMRC released Revenue and Customs Brief 2 (2025): the use of VAT grouping within the care industry which is effectively an attempt to end charging VAT on care services that would otherwise be VAT exempt.
This will likely impact care service providers who have used, or are considering using, an unregulated trading subsidiary to charge VAT on care services that would otherwise be VAT exempt.
An overview of the scheme in its current state
- The Welfare Scheme restructures supplies to move them from Exempt to VATable when supplied to Local Authorities / NHS Bodies – who can claim the VAT back – the net result being recovery of the associated VAT costs.
- HMRC have not challenged this approach for over a decade, and provided many positive rulings, but now say it is VAT avoidance.
- Local Authorities / NHS bodies seem keen to novate back, and both HMRC and these public bodies do not appear to understand the financial implications.
If you’re a care sector provider who has adopted the scheme or are intending to adopt the scheme, we would appreciate you completing this brief survey so we can understand the effect of HMRC’s latest VAT challenge.