LIFE Services - UT Decision is kiss of death for non-regulated welfare providers

March 2018

The UT's decision in the case of LIFE Services Limited [2017] UKUT 484 has been welcomed by HMRC as proof that the UK legislation is on all fours with the EU legislation concerning the provision of welfare services.

Long story short - UK law was amended some years ago following HMRC's defeat in the case of Kingscrest.  Kingscrest was a private care home operator and successfully argued that its supplies of welfare services were taxable.  Kingscrest realised that its customers - in the main local authorities - enjoyed a special VAT recovery status and that charging VAT would, in contrast to charitable welfare providers, enable it to recover VAT on its expenditure.

Kingscrest's victory paved the way for innumerable historic VAT claims by similar private welfare operators - quite often local authorities would demand a slice of the action as an acknowledgement of their role in accepting the additional output tax charge.

Meanwhile the law had been tweaked to ensure that 'state regulated' commercial welfare provider's supplies were also exempt from VAT.  Questions still of course remained as to whether fiscal neutrality was met if some welfare providers were to be taxed differently from others when providing, ostensibly, the same services.

Enter LIFE Services Ltd - a commercial daycare service provider used by adults with learning difficulties.  Conversely, HMRC wanted to argue in this case that LIFE's supplies of healthcare, because it was not state regulated, were taxable.  LIFE, whose charges were made directly to individuals, of course argued that its supplies were of welfare.

LIFE employed two main arguments.   The first that it was 'de facto' state regulated.  The second that UK lawmakers had not implemented the EU welfare exemption correctly and, in consequence, had breached fiscal neutrality.  

The First Tier accepted this second argument - taking issue with the fact that all charities were entitled to exempt welfare provision when there was a further test for for commercial providers (i.e.. regulated status).

The UT overturned this decision, ruling that it was reasonable to use regulation as a condition of the exemption of welfare and that charities were also subject to regulation through the Charity Commission. 

However all may not yet be lost.  A second private operator  (TLC) had successfully argued at another Tribunal that fiscal neutrality would be breached if, by dint of differing regulatory contexts operating in different parts of the UK, the same supplier might tax identical supplies differently.  That is to say that a taxable supply in England might be exempt in Scotland by virtue of domestic rules per the regulation of welfare.

The UT may have rejected the FTT's reasoning in LIFE but it was not able, by virtue of procedural rules, to consider the new arguments posed in TLC.  

Whatever the UT's decision in the anticipated TLC case, it does demonstrate that we are dealing with some very fine margins when it comes to discerning fiscal neutrality.


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